fbpx

Adjusting entries for bank reconciliation

Now that we've ran through the bank reconciliation, it's time to adjust the Hats LLC's Cash account balance from $800...

Bank's Cash Balance

Per Bank Statement$850
Checks outstanding($200)
Deposits outstanding$170
Bank error$50
Bank Balance per Reconciliation$870

Company's Cash Balance

Per General Ledger$800
Note receivable$200
Interest earned$20
Service fees($50)
NSF checks($100)
Company Balance per Reconciliation$870

...to $870.

Bank's Cash Balance

Per Bank Statement$850
Checks outstanding($200)
Deposits outstanding$170
Bank error$50
Bank Balance per Reconciliation$870

Company's Cash Balance

Per General Ledger$800
Note receivable$200
Interest earned$20
Service fees($50)
NSF checks($100)
Company Balance per Reconciliation$870

We'll do that with adjusting entries!

You'll only write adjusting entries on the Company's Cash Balance side, because we're writing journal entries from the company's perspective!

This results in the following adjusting entry (representing increases to Cash)...

These are the reconciliation items that increase Cash:

Bank's Cash Balance

Per Bank Statement$850
Checks outstanding($200)
Deposits outstanding$170
Bank error$50
Bank Balance per Reconciliation$870

Company's Cash Balance

Per General Ledger$800
Note receivable$200
Interest earned$20
Service fees($50)
NSF checks($100)
Company Balance per Reconciliation$870

Let's start with "Note receivable" here:

Bank's Cash Balance

Per Bank Statement$850
Checks outstanding($200)
Deposits outstanding$170
Bank error$50
Bank Balance per Reconciliation$870

Company's Cash Balance

Per General Ledger$800
Note receivable$200
Interest earned$20
Service fees($50)
NSF checks($100)
Company Balance per Reconciliation$870

This reconciliation item is where a customer is paying the bank in cash for a note receivable they made with Hats LLC. Therefore, if the customer is paying off their note receivable balance, that means they're subtracting from the Notes Receivable account, which means we'll credit that account (since it's an asset and has a normal debit balance).

TransactionDebitCredit
??????
     Note Receivable$200
     ??????

Next, "Interest earned"!

Bank's Cash Balance

Per Bank Statement$850
Checks outstanding($200)
Deposits outstanding$170
Bank error$50
Bank Balance per Reconciliation$870

Company's Cash Balance

Per General Ledger$800
Note receivable$200
Interest earned$20
Service fees($50)
NSF checks($100)
Company Balance per Reconciliation$870

This means that over the course of the month, we made $20 in interest revenue, which will be added to the Interest Revenue account. Being a revenue account, that means it has a normal credit balance. Therefore, to add to Interest Revenue, we'll credit it!

TransactionDebitCredit
??????
     Note Receivable$200
     Interest Revenue$20

This is it for our reconciliation items that increase the Cash account balance, therefore we can wrap up this adjusting journal entry by debiting Cash by $220 (because $200 + $20 = $220)!

TransactionDebitCredit
Cash$220
     Note Receivable$200
     Interest Revenue$20
TransactionDebitCredit
Cash$220
     Note Receivable$200
     Interest Revenue$20

...and the following adjusting entry (representing decreases to Cash):

These are the reconciliation items that decrease Cash:

Bank's Cash Balance

Per Bank Statement$850
Checks outstanding($200)
Deposits outstanding$170
Bank error$50
Bank Balance per Reconciliation$870

Company's Cash Balance

Per General Ledger$800
Note receivable$200
Interest earned$20
Service fees($50)
NSF checks($100)
Company Balance per Reconciliation$870

We'll start with "Service fees" here...

Bank's Cash Balance

Per Bank Statement$850
Checks outstanding($200)
Deposits outstanding$170
Bank error$50
Bank Balance per Reconciliation$870

Company's Cash Balance

Per General Ledger$800
Note receivable$200
Interest earned$20
Service fees($50)
NSF checks($100)
Company Balance per Reconciliation$870

...which will be filed under the Service Fee Expense account.

Considering that we're increasing our Service Fee Expense here, we'll debit the account, since expenses have a normal debit balance.

TransactionDebitCredit
Service Fee Expense$50
??????
     ??????

Next, "NSF checks"!

Bank's Cash Balance

Per Bank Statement$850
Checks outstanding($200)
Deposits outstanding$170
Bank error$50
Bank Balance per Reconciliation$870

Company's Cash Balance

Per General Ledger$800
Note receivable$200
Interest earned$20
Service fees($50)
NSF checks($100)
Company Balance per Reconciliation$870

With this reconciliation item, Hats LLC is losing out on $100 cash from customer checks that ended up having non-sufficient funds.

We'll still be paid by the customer in the future, it's just that for now, we must take their $100 out of the Cash account.

To represent that we'll be paid in the future, we're going to place their $100 in the Accounts Receivable account (think about it: we'll be "receiving" that $100 sometime in the future once the customer figures out their non-sufficient funds!)

TransactionDebitCredit
Service Fee Expense$50
Accounts Receivable$100
     ??????

This is it for our reconciliation items that decrease the Cash account balance, therefore we can wrap up this adjusting journal entry by crediting Cash by $150 (because $100 + $50 = $150)!

TransactionDebitCredit
Service Fee Expense$50
Accounts Receivable$100
     Cash$150
TransactionDebitCredit
Service Fee Expense$50
Accounts Receivable$100
     Cash$150