Adjusting Entries for Bank Reconciliation: Practical Guide
Adjusting entries for bank reconciliation help finance teams keep the cash balance accurate when the bank statement and the books do not line up. Some differences are only timing issues, while others require a journal entry in the ledger. Knowing the difference is important for month-end close, reporting, and audit readiness.
A clean reconciliation process shows what matched, what remains open, and which items need adjustment. That makes it easier to close the books with confidence and explain every difference clearly.
What adjusting entries mean in bank reconciliation
In a bank reconciliation, the company compares its internal cash records with the bank statement. The comparison usually produces two kinds of differences:
- Timing differences that explain why a transaction appears on one side but not the other yet
- Book corrections that require a journal entry to update the ledger
Not every reconciling item needs an adjusting entry. For example, an outstanding check or a deposit in transit may be part of the reconciliation schedule, but if it was already recorded correctly in the books, it usually does not require a new journal entry.
What does require an adjustment is a transaction that changes the company’s book balance, such as a bank fee, interest earned, a returned payment, or a recording error.
Common items that affect bank reconciliation
The table below shows the most common reconciliation items and whether they usually require a journal entry.
| Item | What it means | Typical treatment |
|---|---|---|
| Outstanding checks | Checks issued by the business but not yet cleared by the bank | Usually a reconciling item only if already recorded |
| Deposits in transit | Deposits recorded in the books but not yet shown on the bank statement | Usually a reconciling item only if already recorded |
| Bank fees and charges | Service charges deducted by the bank | Usually requires an adjusting entry |
| Interest earned | Interest credited by the bank | Usually requires an adjusting entry |
| Returned payment / NSF item | A customer payment that bounced or was reversed | Usually requires an adjusting entry |
| Bookkeeping error | A transaction was entered with the wrong amount, date, or reference | Usually requires a correcting entry |
This distinction matters because the goal of reconciliation is not to force every difference into the ledger. The goal is to record only the items that need a book adjustment and keep the reconciliation schedule accurate.
Examples of common adjusting entries
Bank fees
If the bank deducts a monthly service fee that has not yet been recorded, the books need to reflect the lower cash balance and the related expense.
Example journal entry:
Debit: Bank Charges Expense
Credit: Cash
Interest earned
If the bank adds interest to the account, but the company has not recorded it yet, the ledger should be updated.
Example journal entry:
Debit: Cash
Credit: Interest Income
Returned payment or NSF item
When a customer payment is returned by the bank, the cash balance and the underlying receivable or payment record may need to be reversed or corrected.
Example journal entry:
Debit: Accounts Receivable
Credit: Cash
The exact accounting treatment depends on the transaction type and company policy, but the goal is the same: the books should reflect the true cash position after the reversal.
Error correction
If a transaction was entered with the wrong amount, the ledger should be corrected so the reconciliation can be completed on accurate data.
Example journal entry:
Debit or Credit: Cash
Debit or Credit: The related account affected by the mistake
A practical workflow for bank reconciliation adjustments
A structured workflow helps finance teams avoid missed items and inconsistent adjustments.
-
Upload the bank statement and book records
- Side A can represent the company’s books or cash ledger
- Side B can represent the bank statement
-
Map key fields once
- Date
- Amount
- Reference or identifier
- Optional supporting fields such as narration or transaction type
-
Run the reconciliation
- The system matches records using structured rules
- Fully matched items are separated from partial matches and open items
-
Review the open items
- Check whether a difference is a timing issue, a missing file, a fee, interest, or a real error
- Only true book adjustments should flow into journal entries
-
Post the required adjustments
- Update the ledger where necessary
- Keep a clear audit trail for each entry
-
Refresh the report
- Re-run the reconciliation after corrections
- Confirm the updated report reflects the final position
How reconciliation software supports adjusting entries
Manual bank reconciliation in Excel often becomes difficult when transaction volumes grow or when multiple files need to be checked each period. A reconciliation platform helps by turning the process into a repeatable workflow.
With Cointab, finance teams can:
- Compare Side A and Side B records in a structured way
- Review fully matched, partially matched, unmatched, and skipped transactions separately
- Use supporting files to enrich or prepare the data before reconciliation
- Create derived columns when a reference or amount needs to be standardized
- Manually match exceptions when the business context is clear
- Download audit-ready Excel reports for review and documentation
This approach makes it easier to see which differences are timing items and which ones require actual adjusting entries in the books.
Why accurate adjusting entries matter
Well-managed bank reconciliation adjustments support more than just clean books. They also help finance teams:
- Close periods faster
- Spot bank errors and internal recording mistakes early
- Keep cash balances reliable for reporting and planning
- Reduce back-and-forth during audit review
- Explain open items clearly to internal stakeholders
When the reconciliation process is inconsistent, teams often end up re-checking the same items multiple times, rebuilding Excel logic, or carrying unresolved differences into the next period. A repeatable reconciliation workflow reduces that friction.
Best practices for bank reconciliation adjustments
Separate timing differences from real errors
Outstanding checks and deposits in transit should not be treated the same way as missing bank fees or incorrect entries. Clear classification reduces unnecessary journal entries.
Reconcile on a regular schedule
Monthly reconciliation is common, but some teams reconcile weekly or daily for high-volume accounts. The more frequently the review happens, the easier it is to trace exceptions.
Keep supporting documentation with each adjustment
Every journal entry should be traceable to the bank statement, ledger record, or supporting file that explains the difference.
Standardize how open items are reviewed
Use the same process for classifying fees, interest, reversals, and errors so different team members do not handle the same issue differently.
Automate repetitive matching work
Reconciliation software can reduce the manual effort of comparing statements line by line. That leaves finance teams free to focus on exceptions that actually need judgment.
Bank reconciliation adjustments in a modern finance workflow
In a modern workflow, the reconciliation does not end when the first match is completed. Finance teams often need to handle late files, additional statements, or refreshed data before the period is final.
A structured platform can help teams:
- Reuse the same reconciliation setup for future periods
- Upload missed files under the same workflow and refresh the report
- Keep a clear view of what ran, when it ran, and which files were used
- Maintain history for future reference and review
That is especially useful for recurring bank reconciliation where the same accounts, same formats, and same exception types appear every month.
Frequently asked questions
Are outstanding checks adjusting entries?
Usually, no. Outstanding checks are generally reconciling items because the business already recorded the payment, but the bank has not cleared it yet.
Do deposits in transit need journal entries?
Usually, no. Deposits in transit are typically timing differences already recorded in the books, so they are included in the reconciliation rather than posted again.
What bank reconciliation items usually require an adjustment?
Common examples include bank fees, interest earned, returned payments, and bookkeeping errors that affect the ledger balance.
Can bank reconciliation be automated?
Yes. Finance teams can automate data intake, field mapping, matching, and report generation for recurring reconciliation workflows. This reduces manual spreadsheet work and helps teams focus on exceptions.
Why should finance teams keep a reconciliation report?
A reconciliation report provides an audit trail of matched, partial, unmatched, and skipped items. It also helps explain which differences were timing-related and which ones required a book adjustment.
