courses › Bookkeeping

Bank Reconciliation

level 27 course

Match your books to the bank statement and find the true cash balance.

In your head, jot if needed · no calculator why?

Opens at level 27.

Builds on: Journal Entries (not open yet)

the lesson

The idea, the techniques and a tip for each skill, right here. The Learn page adds worked examples for every skill and untimed practice.

Read the lesson · about 3 minutes

The idea

A bank reconciliation matches your books (the ledger) to the bank statement, to find the true cash balance. They rarely agree at first, because each side knows things the other does not yet.

The bank already knows about its fees, interest it paid you, and customer checks that bounced; your ledger needs those. Your ledger already knows about deposits the bank has not posted (deposits in transit) and checks your suppliers have not cashed (outstanding checks); the bank figure needs those. Fix each side, and both should land on the same number.

Techniques

Fix the ledger side

The bank recorded something your books have not.

Start with the ledger balance.
Subtract bank fees and bounced checks.
Add interest the bank paid you.
Record each one in your books, like a bank-fee expense. Never invent revenue to force a match.

worked example

Example: The ledger shows $1,800. The bank statement includes a $25 service fee and $6 of interest earned, neither of which is in the ledger yet. What is the corrected ledger cash balance?

Corrected ledger: $1,800 − $25 + $6 = $1,781.

Answer: $1,781

Fix the bank side

Your books recorded something the bank has not posted yet.

Start with the bank statement balance.
Add deposits in transit.
Subtract outstanding checks: they will still come out.
The bank's own mistakes are corrected on this side too.

worked example

Example: The bank statement shows $4,000. A $600 deposit is still in transit, and checks totaling $900 haven't cleared. What is the adjusted bank balance?

Adjusted bank: $4,000 + $600 − $900 = $3,700.

Answer: $3,700

Meet in the middle

You have both balances and a list of differences.

Fix the ledger side and the bank side separately.
Both give the true cash balance. If they differ, look for a missed item.

worked example

Example: The ledger shows $2,050; the bank statement shows $2,300. There's an unrecorded $50 bank fee, a $400 check that hasn't cleared, and a $100 deposit in transit. What is the true cash balance?

Ledger side: $2,050 − $50 = $2,000.
Bank side: $2,300 + $100 − $400 = $2,000.

Answer: $2,000

Tips by skill

TipCorrected ledger balance: Start from the ledger. Subtract fees and bounced checks your books don't show yet; add interest the bank paid.
TipAdjusted bank balance: Start from the statement. Add deposits in transit, and subtract checks that haven't cleared.
TipAdjust the books or the bank side?: The bank hasn't seen it yet, or the bank erred: bank side. The bank knows and your books don't, or you erred: ledger side.
TipFind the true cash balance: Fix each side on its own. Fees go on the ledger side; deposits in transit and uncleared checks go on the bank side.

Watch out for

Adding a bank fee to the ledger instead of subtracting it.
Adding outstanding checks to the bank balance. They will still come out of the account.
Adjusting the ledger for an uncashed check, which records the payment twice.
Trusting the bank statement as it stands, or fixing only one side and stopping.

skills · practice stats

From rounds of this course only: box, review and test-out answers are left out. Once a skill has 40 tries, it compares your first 20 tries with your last 20.

Corrected ledger balance par 19 s not tried yet
worked example
The ledger shows $9,215. The bank statement includes $2 of interest earned and a $1,760 customer check that bounced, neither of which is in the ledger yet. What is the corrected ledger cash balance?

Answer: $7,457.00
1. Record what the bank already knows: $9,215 + $2 (interest) − $1,760 (bounced check) = $7,457.
2. The interest is recorded as income. The bounced check goes back into accounts receivable: the customer still owes it.
Adjusted bank balance par 19 s not tried yet
worked example
The bank statement shows $2,020. A $650 deposit is still in transit, and checks totaling $600 haven't cleared. What is the adjusted bank balance?

Answer: $2,070.00
1. Adjusted bank = statement + deposits in transit − outstanding checks
2. = $2,020 + $650 − $600 = $2,070.
Adjust the books or the bank side? par 14 s not tried yet
worked example
The bank paid $1,075 of interest into the account, and you haven't recorded it. Which side of the reconciliation gets adjusted?
1. No adjustment needed
2. Adjust the bank side
3. Adjust both sides
4. Adjust the ledger (book) side
Answer: Adjust the ledger (book) side
1. Items the bank hasn't seen yet, and the bank's own mistakes, adjust the bank side. Items the bank knows about that you haven't recorded (fees, interest, bounced checks, your own typos) adjust the ledger.
2. The bank already knows about this and your books do not, so the ledger side changes.
Find the true cash balance par 25 s not tried yet
worked example
The ledger shows $12,145; the bank statement shows $13,760. There's an unrecorded $85 bank fee, a $1,940 check that hasn't cleared, and a $240 deposit in transit. What is the true cash balance?

Answer: $12,060.00
1. Ledger side: $12,145 − $85 = $12,060.
2. Bank side: $13,760 + $240 − $1,940 = $12,060.
3. The two sides match, so the books reconcile.

rest ladder

Win 3 of your last 4 rounds and the course rests. A win is 90% right, within 2× the round's par. Pass the review when it comes back and the next rest is longer.

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