Reconciling the Bank Statement

Here's a tip a dear neighbor (Herb) had learned in the 1920's from an instructor at a technical college: When doing the bank reconciliation, put it where it ain't. He found it to be helpful and wanted me to share it.

Here are several examples to show how it helped Herb and others:

The bank statement already shows the bank service charge. However, the company usually doesn't know the amount of the service charge until the bank statement arrives. So at that point the service charge is not in the company's general ledger. To reconcile the bank statement with the general ledger Cash account, you will need to enter the bank service charge into the Cash account. Therefore, in the bank reconciliation process the bank service charge will be listed as an adjustment to the books (to the Cash account). As my neighbor learned, you put the service charge where it ain't.

Next let's talk about outstanding checks. Outstanding checks are checks that have been written by the company, but these checks have not yet cleared the bank. (They have not yet made their way to the company's bank account on which they were drawn or written.) Outstanding checks, like all checks written, are already recorded on the company's books, but they are not on the bank statement. Guess what? Put them where they ain't. Outstanding checks will be listed as an adjustment to the balance per the bank.

Deposits in transit are already on the books, but they are not on the bank statement. Deposits in transit will be an adjustment to the balance per bank.

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