Module 9About 8 minFree lesson

Bank reconciliation basics

Objective: Compute adjusted bank and adjusted book balances.

A bank reconciliation compares the bank statement with the Cash account and explains every difference. Differences fall into two groups.

Bank side (adjust the bank balance)	Book side (adjust the books)
Deposits in transit (+)	Bank fees (−)
Outstanding checks (−)	Interest earned (+)
Bank errors (±)	NSF checks (−)
	Collections by the bank (+)
	Book errors (±)

Work the reconciliation in a fixed order. Start with the statement's ending balance, add deposits in transit, subtract outstanding checks, and adjust for any bank errors. Separately, start with the book balance and apply items the bank recorded but the books did not. If both adjusted figures agree, journalize only the book-side items.

Check your work

Did both adjusted balances reach the same figure?
Are only book-side items journalized?
Are last month's outstanding items either cleared or still listed?

Worked example: A simple reconciliation

Bank $8,750 + deposit in transit $500 − outstanding checks $650 = $8,600. Books $8,700 − unrecorded fee $100 = $8,600. Only the fee is journalized.

Journal entry for the worked example
Account	Debit	Credit
Bank Fees Expense	$100.00
Cash		$100.00

Common mistakes

✗ Journalizing a deposit in transit.
✓ It is already recorded; journalizing it again double-counts cash.

Guided practice

Use hints freely here.

Item 1 of 1

Freeintermediate

Reconcile Northlight Design Studio's bank account

Reconcile the bank statement to the Cash account at month-end. Classify each unmatched item, compute the adjusted bank and book balances, and record only the adjusting entries the books need.

Bank statement balance (Mar 31, 2026)

$8,750.00

Cash account (books)

$8,700.00

1. Classify each unmatched item

In the books Deposit of $500.00 recorded Mar 31, not on statement ($500.00)
In the books Outstanding checks totaling $650.00 (($650.00))
On bank statement Bank fee $100.00 not yet recorded (($100.00))

2. Adjusted balancesAdjusted bank balanceAdjusted book balance

3. Adjusting entries the books need

Record only book-side items. Leave this empty if no entries are needed.

Independent practice

Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.

Item 1 of 2

Freeeasy

Reconcile Corner Bean Café's bank account

Reconcile the bank statement to the Cash account at month-end. Classify each unmatched item, compute the adjusted bank and book balances, and record only the adjusting entries the books need.

Bank statement balance (Mar 31, 2026)

$5,910.00

Cash account (books)

$6,100.00

1. Classify each unmatched item

In the books Deposit of $660.00 recorded Mar 31, not on statement ($660.00)
In the books Check #1182 for $500.00 not yet cleared (($500.00))
On bank statement Monthly service fee $30.00 (($30.00))

2. Adjusted balancesAdjusted bank balanceAdjusted book balance

3. Adjusting entries the books need

Record only book-side items. Leave this empty if no entries are needed.

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Key terms

Bank reconciliation: A comparison that explains differences between the bank statement and the Cash account.
Deposit in transit: A deposit recorded in the books but not yet on the bank statement.
Outstanding check: A check written and recorded but not yet cleared by the bank.

References and provenance

OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
IRS, Recordkeeping for small businesses (accessed 2026-10-29)

Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.