Bank reconciliation journal entries is the process of comparing the balances in an entity’s accounting records for a cash account with the corresponding information on a bank statement. This process helps identify discrepancies between the two and ensures that the cash records are accurate.
Here are examples of common journal entries that may be needed during the bank reconciliation process:
1. Recording Bank Service Charges
Example 1: Bank Charges
Suppose your bank statement shows a service charge of $50 for the month of July, which hasn’t been recorded in your books yet.
Journal Entry on July 31, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 07-31-2024 | Bank Service Charges Expense | 50 | |
| 07-31-2024 | To Bank | 50 |
Explanation:
- Bank Service Charges Expense will debited to record the expense incurred.
- Bank will credited to reflect the reduction in the Bank balance due to the bank charge.
2. Recording NSF (Non-Sufficient Funds) Checks
Example 2: NSF Check
A customer’s check for $200 was deposited but later bounced due to insufficient funds. The bank deducted this amount from your account, but it hasn’t been recorded in your books.
Journal Entry on July 31, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 07-31-2024 | Accounts Receivable | 200 | |
| 07-31-2024 | To Bank | 200 |
Explanation:
- Accounts Receivable will debited to restore the customer’s balance, as the payment was not successfully completed.
- Bank will credited to reflect the reduction in your bank balance due to the NSF check.
3. Recording Interest Earned
Example 3: Interest Earned on Bank Account
Your bank statement shows $30 of interest earned during the month, which hasn’t been recorded in your books.
Journal Entry on July 31, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 07-31-2024 | Bank | 30 | |
| 07-31-2024 | To Interest Income | 30 |
Explanation:
- Bank will debited to reflect the increase in your bank balance due to the interest earned.
- Interest Income will credited to record the income earned from the bank.
4. Adjusting for Outstanding Checks
Example 4: Outstanding Checks
Suppose there are checks totaling $1,000 that you issued but have not yet cleared the bank.
No journal entry is required for outstanding checks since they have already been recorded in your books. These checks will be subtracted from the bank statement balance during reconciliation.
5. Correcting Errors in the Books
Example 5: Book Error
Suppose you recorded a payment of $500 as $550 in your books. The bank statement shows the correct amount of $500.
Journal Entry on July 31, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 07-31-2024 | Bank | 50 | |
| 07-31-2024 | To Expense Account (or appropriate account) | 50 |
Explanation:
- Bank will debited to correct the overstatement in your Bank account.
- Expense Account (or another appropriate account) will credited to adjust the corresponding entry.
6. Recording Deposits in Transit
Example 6: Deposit in Transit
Suppose you made a deposit of $2,000 at the end of July that hasn’t appeared on the bank statement yet.
No journal entry is required for deposits in transit as they have already been recorded in your books. These deposits will be added to the bank statement balance during reconciliation.
Bank reconciliation journal entries ensure that any discrepancies between your accounting records and the bank statement are accurately adjusted, maintaining the integrity of your financial records.