Reconciling the Bank Statement

When preparing a bank reconciliation, you may find the following tip to be helpful: "Put it where it ain't." My now deceased neighbor (Herb) insisted that I share this tip, which he learned from his instructor at a technical college in the 1920s. We will use three examples to show the usefulness of Herb's tip.

When a company receives the bank statement for its checking account, the bank statement already shows the deduction for the bank's service charge. Therefore, the bank statement balance does not need to be adjusted. On the other hand, the company's general ledger accounts will need to be adjusted with a credit to the Cash account and a debit to an account such as Bank Fees Expense. Therefore, as part of the bank statement reconciliation you need to show the bank service charge as an adjustment to the books. As Herb coached us, you put the bank service charge where it ain't.

Another situation you will likely encounter when reconciling the bank statement involves outstanding checks. Outstanding checks are the checks that have been written (and recorded) by the company, but these checks have not yet cleared the bank. These checks are already recorded in the company's general ledger, but they are not yet shown on the company's bank statement. You got put the amount of the outstanding checks where they ain't. You show the amount as an adjustment to the bank statement balance.

Our third example involves deposits in transit. Deposits in transit are already recorded in the company's general ledger accounts, but these deposits are not yet on the bank statement. Therefore, you show the amount of the deposits in transit as an adjustment to the bank statement balance.

I hope you found Herb's tip to be helpful.