Adjusting Entries for Bank Reconciliation

We need to adjust the our lemonade stand's Cash account balance from $800 to $870.

Bank's Cash Balance

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

Company's Cash Balance

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

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

PRO TIP: Wanna see how I created these? Look below!

TransactionDebitCredit
Cash$220
     Note Receivable$200
     Interest Revenue$20
TransactionDebitCredit
Service Fee Expense$50
Accounts Receivable$100
     Cash$150

Adjusting entry to 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

The blue underlined text signals...

  • We're recognizing a Note receivable through reconciliation. ➡️ We'll reference the Notes Receivable account.
  • We're recognizing Interest earned through reconciliation. ➡️ This serves as revenue and will be filed under the Interest Revenue account.
  • Both of these items are increasing our cash. ➡️ We'll store this in the Cash account.
TransactionDebitCredit
??????
     Notes Receivable$200
     ??????

The reason is...

  • During reconciliation, we realized that we've "cashed-in" (-) on a note we lent out. The borrower is paying us back for it and no longer owes the note balance.
  • This was represented through Notes Receivable.
  • Which is an asset account, and therefore has a normal debit balance.
  • So, to decrease it by $200, we'll credit it.
TransactionDebitCredit
??????
     Note Receivable$200
     Interest Revenue$20

The reason is...

  • During reconciliation we realized that we gained (+) revenue through interest on a note we lent out.
  • This is represented through Interest Revenue.
  • Which is a revenue account, and therefore has a normal credit balance.
  • So, to increase it by $20, we'll credit it.
TransactionDebitCredit
Cash$220
     Note Receivable$200
     Interest Revenue$20

The reason is...

  • We have obtained (+) cash through the note collected ($200) and the interest revenue earned ($20).
  • This is represented through Cash.
  • Which is an asset account, and therefore has a normal debit balance.
  • So, to increase it by $200 + $20 = $220, we'll debit it.

Adjusting entry to 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

The blue underlined text signals...

  • We're recognizing Service fees during reconciliation. ➡️ We'll expense these through the Service Fee Expense account.
  • We're recognizing NSF checks during reconciliation. ➡️ The customer will pay us for the balance of their non-sufficient funds check in the future, so we'll store it in Accounts Receivable.
  • Both of these items are decreasing our cash. ➡️ We'll take them out of the Cash account.
TransactionDebitCredit
Service Fee Expense$50
??????
     ??????

The reason is...

  • During reconciliation, we have incurred an expense (+) through service fees for our bank.
  • This is represented through Service Fee Expense.
  • Which is an expense account, and therefore has a normal debit balance.
  • So, to increase it by $50, we'll debit it.
TransactionDebitCredit
Service Fee Expense$50
Accounts Receivable$100
     ??????

The reason is...

  • During reconciliation, we realized we will be receiving (+) payment from a customer for their non-sufficient funds check at a later date.
  • This is represented through Accounts Receivable.
  • Which is an asset account, and therefore has a normal debit balance.
  • So, to increase it by $100, we'll debit it.
TransactionDebitCredit
Service Fee Expense$50
Accounts Receivable$100
     Cash$150

The reason is...

  • We have lost (-) cash through the service fee ($50) and the NSF check ($100).
  • This is represented through Cash.
  • Which is an asset account, and therefore has a normal debit balance.
  • So, to decrease it by $50 + $100 = $150, we'll credit it.
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