Bank reconciliation journal entries are needed only for book-side items: things the bank recorded that your ledger has not, such as service charges, interest, returned checks and your own keying errors. Deposits in transit, outstanding checks and errors made by the bank get no entry. Post the entries, and ledger cash equals the adjusted balance.
Which reconciling items need bank reconciliation journal entries?
A reconciling item needs a journal entry when the ledger is wrong or incomplete, and needs none when only the bank is behind. Ask one question of every line: once this item is fully settled, will the ledger balance have to change? If yes, book it now. If the bank will catch up by itself, leave the ledger alone.
That test splits a reconciliation into two groups.
Items that change the ledger. These sit on the book side of the reconciliation. The bank has already acted, and the books have not caught up:
- service charges, wire fees and other bank fees
- interest credited to the account
- a deposited check returned unpaid (an NSF check, short for non-sufficient funds)
- automatic debits and credits nobody entered, such as a loan payment or a customer's direct transfer
- amounts you keyed wrong in the ledger
Items that do not change the ledger. These sit on the bank side. Your books are right, and the bank simply has not processed the item yet, or has made its own mistake:
- deposits in transit
- outstanding checks
- errors made by the bank, such as another customer's deposit posted to your account
The table below runs eight example reconciling items through the test. The company, the amounts and the check numbers are invented for illustration.
| # | Example item | Side | Entry? | Debit | Credit | Amount |
|---|---|---|---|---|---|---|
| 1 | Deposit made on the 31st, posted by the bank on the 2nd | Bank | No | 3,600.00 | ||
| 2 | Check 4410 to a supplier, not yet presented | Bank | No | 925.00 | ||
| 3 | Monthly account maintenance fee | Book | Yes | Bank service charges | Cash | 35.00 |
| 4 | Interest credited by the bank | Book | Yes | Cash | Interest income | 6.40 |
| 5 | Customer check returned unpaid | Book | Yes | Accounts receivable | Cash | 780.00 |
| 6 | Fee for the returned check | Book | Yes | Bank service charges | Cash | 15.00 |
| 7 | Check 4402 written for 1,840.00, entered as 1,480.00 | Book | Yes | Repairs expense | Cash | 360.00 |
| 8 | Deposit of another bank customer credited to this account | Bank | No | 500.00 |
Five of the eight lines produce an entry. Together those five reduce ledger cash by 1,183.60: minus 35.00, plus 6.40, minus 780.00, minus 15.00 and minus 360.00. If the ledger showed 21,400.00 before the entries, it shows 20,216.40 after, and that should be the adjusted balance on the reconciliation. A full month that runs from raw statement to finished entries is laid out in a bank reconciliation example worked line by line.
Journal entries for bank fees and interest income
Bank fees are recorded as a debit to an expense account, usually called bank service charges or bank fees, and a credit to cash. Interest the bank pays is the reverse: debit cash, credit interest income. Both are booked from the statement line, because the statement is often the first notice you get.
In journal form, items 3 and 4 from the table look like this:
Dr Bank service charges 35.00
Cr Cash - operating 35.00
Monthly maintenance fee per statement
Dr Cash - operating 6.40
Cr Interest income 6.40
Interest credited per statement
Keep fees and interest as two entries even when they arrive on the same statement. Netting a 35.00 fee against 6.40 of interest into one 28.60 debit hides both numbers from anyone reading the income statement, and it makes the interest harder to find when someone prepares the year's tax forms.
Some accounts pay no interest but carry several kinds of fee in one month: maintenance, wire, stop-payment, paper statement. One entry per fee type is cleaner than one lump, since a reviewer can then compare each fee to the bank's schedule. How to spot a fee that should not be there, and where fees sit on the reconciliation form, is covered in bank service charges on a bank reconciliation.
NSF check and returned-deposit journal entries
A returned customer check is recorded by debiting accounts receivable and crediting cash for the face of the check. The sale is not reversed. The customer still owes the money, so the balance goes back onto their account, and the bank's charge for the returned item gets its own entry.
Items 5 and 6 in journal form:
Dr Accounts receivable - customer 780.00
Cr Cash - operating 780.00
Customer check 1187 returned unpaid
Dr Bank service charges 15.00
Cr Cash - operating 15.00
Returned item fee, check 1187
If your terms let you pass the returned-item fee on to the customer, the second entry debits the customer's receivable instead of the expense account. Decide this by policy, not case by case, so the same customer is not treated differently from one month to the next.
The returned check often comes back paid on a second deposit the following month. That redeposit is an ordinary receipt: debit cash, credit the customer. The follow-up, the second presentment and the choice to charge the fee back are covered in NSF check bank reconciliation entries and follow-up.
Correcting entries for ledger recording errors
A correcting entry fixes a mistake made in your own books, and it moves cash by the difference between what was recorded and what was right. It never deletes or rewrites the original entry. The original stays, the correction sits beside it, and anyone reviewing the account can see both.
Item 7 is a typical case. Check 4402 was written for 1,840.00 and the bank paid 1,840.00, but the bookkeeper entered 1,480.00. Cash in the ledger is 360.00 too high, and the repairs expense is 360.00 too low:
Dr Repairs expense 360.00
Cr Cash - operating 360.00
Correct check 4402, entered 1,480.00, paid 1,840.00
The memo carries both amounts so the correction explains itself. Confirm the right figure from the check image or the cleared item, not from the statement alone, since the bank can misread a check too.
Three other ledger errors turn up often:
- A deposit or payment never entered. A customer paid by direct transfer and no one recorded it. Debit cash and credit the customer's receivable. When the transfer pays only part of an invoice, apply it to that invoice and leave the rest open; partial payment reconciliation shows how to match a deposit that settles part of a balance.
- An item entered twice. Reverse the duplicate with the opposite entry, dated in the current period, and reference the original.
- An item posted to the wrong bank account. The total of the two cash accounts is right, but each is wrong. Move the amount between the two cash accounts and reconcile both.
What about bank errors: do they get a journal entry?
No. An error made by the bank is not a ledger entry, because your books are already correct. You list it on the bank side of the reconciliation, contact the bank to have it reversed, and keep the correspondence with the reconciliation until the reversal shows on a later statement.
Item 8 is the classic one. The bank credited a 500.00 deposit belonging to another customer to this account. If you booked it, your cash would show money that is not yours, and you would have to reverse the entry when the bank pulled the deposit back. Instead, the reconciliation shows:
Balance per bank statement ...
Less: deposit credited in error (500.00)
The same rule applies to a check the bank paid at the wrong amount, or a debit that belongs to another account. If the bank has not corrected the error by the next statement, it stays on the bank side, with a note of when you raised it and with whom. A bank-side error still open after two or three statements needs escalation, not another month on the list.
Mistake: journaling outstanding checks to make the reconciliation agree
Booking an entry for an outstanding check or a deposit in transit is a common error, and it does damage that grows each month. These timing items are already correct in the ledger. An entry for them pushes ledger cash away from the truth, and the bank will clear the item next month anyway.
Here is how it goes wrong. Check 4410 for 925.00 has not cleared. A bookkeeper who wants ledger cash to equal the bank balance credits accounts payable and debits cash for 925.00. The ledger now matches the statement. Next month the check clears, the bank balance falls by 925.00, and the ledger has nothing to match it with. The reconciliation is off by 925.00, and the cause is a month old.
A milder form of the same mistake is the "reversing" approach: book the timing items at month-end and reverse them on the first of the next month. That keeps the ledger right in the long run, but it doubles the entries, confuses anyone reading the cash account, and invites a missed reversal. The bank side of the reconciliation exists precisely so that timing items can be shown without touching the books.
A related trap is an entry to "other income" or "miscellaneous expense" for an unexplained difference. That is not a journal entry for a reconciling item. It is a plug, and it buries whatever error caused the gap.
Dating and documenting reconciliation journal entries
Date bank reconciliation journal entries on the last day of the statement period, so the cash account matches the reconciliation as of that date. Give each entry a memo that names the item and the source, and attach the statement page or bank notice. Prepare and approve them like any other manual entry.
A short checklist for each entry:
- Date: the statement end date, or the date the bank posted the item if your close process records each item on its own day.
- Memo: what the item is and where it appears, for example "Returned item fee, check 1187, statement p. 2".
- Support: the statement line, a returned-item notice, the check image for a correction.
- Reference: the reconciliation it came from, such as "Bank rec, operating, March".
- Approval: someone other than the preparer approves correcting entries, since they change expense or revenue accounts.
When the period is already closed, date the entry in the first open period and say so in the memo. Do not reopen a closed month to post a fee, unless the amount matters to reports already issued.
After posting, run the reconciliation once more. The ledger balance should now equal the adjusted book balance, and the book side should show no reconciling items at all. Only bank-side items remain. PreciseBankFlow helps with the step before this one: it matches statement lines to the ledger and lists the lines that do not clear, so you can see which are timing items and which need an entry.