Bank Reconciliation Journal Entries

A bank reconciliation finds the differences between your cash account and the bank statement. Some of those differences fix themselves. Others mean your books are out of date and need a journal entry. This guide shows which items need an entry, how to record each one, and the mistakes that put the wrong account or the wrong side on the page.

Why a reconciliation leads to journal entries

A reconciliation has two sides. The bank side adjusts the bank statement balance. The book side adjusts the balance in your Cash account. At the end, both adjusted balances should be the same number.

Items on the bank side are timing differences. A deposit in transit is already in your books, and the bank will record it in a day or two. An outstanding check is already in your books, and the bank will pay it when it is cashed. You don't record anything for these. The bank catches up on its own.

Items on the book side are different. The bank has already done something, such as taking a fee or paying interest, and your books don't know about it yet. Your Cash account is wrong until you record it. That is why every book-side item needs a journal entry, and bank-side items need none.

The three book-side items you will see most often are:

• Bank service fees: charges the bank has taken out of the account.
• NSF checks: customer checks you deposited that bounced because the customer's account had non-sufficient funds.
• Interest earned: interest the bank has paid into the account.

Once these entries are posted, the Cash account balance equals the adjusted book balance from the reconciliation. That is a useful check that you have recorded everything.

The rule behind each entry

Every journal entry has at least one debit and one credit, and the debits equal the credits. Cash is an asset, so a debit increases it and a credit decreases it. For each item, ask two questions: does cash go up or down, and what is the other side of the story?

• A service fee reduces cash, and the other side is an expense. Debit Bank Fees Expense, credit Cash.
• An NSF check reduces cash, but the customer still owes the money. The other side is a receivable, not an expense. Debit Accounts Receivable, credit Cash.
• Interest earned increases cash, and the other side is revenue. Debit Cash, credit Interest Revenue.

Worked example: Pine Street Dental, October 2026

Pine Street Dental's October reconciliation found three items in the bank statement that aren't in the books yet:

• a bank service fee of $13.61
• a customer check of $453.45 returned NSF
• interest earned of $37.26

Before these entries, the books showed a cash balance of $15,929.77. The reconciliation worked out an adjusted book balance of $15,499.97. The entries below close that gap.

Entry 1: the bank service fee

The bank has already taken $13.61. The fee is a cost of running the business, so it is an expense. Expenses are increased with a debit. Cash has gone down, so it is credited.

Entry 2: the NSF check

When the customer paid with a check, Pine Street Dental debited Cash and credited Accounts Receivable for $453.45. The check bounced, so that cash never really arrived. The fix reverses the original entry: Cash goes back down, and the customer's balance goes back up, because the customer still owes the money.

If the bank also charged a returned-check fee, that fee would be a separate amount. It is common to add it to what the customer owes or to record it as a bank fee, depending on the company's policy. In this example there is no extra fee.

Entry 3: interest earned

The bank paid $37.26 of interest into the account. Cash goes up, so it is debited. Interest is income the business earned, so Interest Revenue is credited.

All three in one compound entry

Many bookkeepers record all the reconciliation items in a single compound entry dated at month end. A compound entry has more than two lines, and Cash appears once for the net change. Here Cash goes down by $13.61 and $453.45 and up by $37.26. The net is a decrease of $13.61 + $453.45 − $37.26 = $429.80, so Cash is credited $429.80.

The debits total $467.06 and the credits total $467.06, so the entry balances. After posting, Cash is $15,929.77 − $429.80 = $15,499.97, which is exactly the adjusted book balance from the reconciliation. The books and the bank now agree.

Other book-side items you may meet

Fees, NSF checks and interest are the everyday items, but the same thinking handles anything else the reconciliation turns up on the book side.

• Automatic payments. A loan payment or utility bill the bank paid directly reduces Cash. Debit the liability or expense it settles and credit Cash.
• Collections by the bank. Sometimes the bank collects money on the company's behalf, such as a customer paying by direct transfer. Cash goes up, so debit Cash and credit whatever the money settles, usually Accounts Receivable.
• Errors in your own books. Suppose a check was written for $86 but entered in the books as $68. Cash is overstated by $18. Correct only the difference: debit the account the check paid and credit Cash for $18. If the error ran the other way, the correction runs the other way too.

The test is always the same. Ask what the bank did, decide whether cash went up or down, and find the account on the other side.

Common mistakes

These are the mistakes the exercises check for. Each one either unbalances the entry or leaves an account with the wrong balance.

Putting every line on the opposite side

Swapping debits and credits is the most common slip. For the service fee, it would mean debiting Cash and crediting Bank Fees Expense, which increases cash and reduces an expense. Both are the opposite of what happened. A quick sense check catches it: the bank took money, so Cash must be credited. For the NSF check the same applies. Accounts Receivable goes back up (debit) and Cash goes down (credit).

Recording only one line

An entry like "Credit Cash 13.61" with nothing else is half an entry. Double-entry bookkeeping needs at least one debit and one credit with equal totals. If you only reduce Cash, the trial balance will be out by $13.61 and the expense will never appear on the income statement.

Expensing the NSF check

A bounced check feels like a loss, so it is tempting to debit an expense. But nothing has been lost yet. The customer received the service and still owes $453.45. Debiting an expense would understate Accounts Receivable and overstate expenses for the month. The right debit is Accounts Receivable. If the debt later turns out to be uncollectible, that is a separate decision recorded through bad debts, not part of the reconciliation.

Treating interest earned as a reduction of cash

In the compound entry, the fee and the NSF check reduce Cash, and it is easy to treat the interest the same way. If you do, Cash is credited $13.61 + $453.45 + $37.26 = $504.32 instead of $429.80, and the interest ends up on the debit side. Interest earned is money paid in, so it increases Cash and is credited to Interest Revenue.

How to check your entries

• Debits equal credits. Add each column before you post.
• Cash matches the reconciliation. The old book balance plus or minus the net Cash line should equal the adjusted book balance. For Pine Street Dental, $15,929.77 − $429.80 = $15,499.97.
• No entries for bank-side items. If you find yourself recording a deposit in transit or an outstanding check, stop. Those are already in the books.
• Every line makes sense on its own. Read each line as a sentence: "Bank fees went up by $13.61. Cash went down by $13.61." If a sentence sounds wrong, the side is wrong.

Related topics

These entries come straight out of a reconciliation. To build the reconciliation itself, with adjusted bank and book balances and formulas that total outstanding checks and deposits in transit, see bank reconciliation in Excel. It uses the same Pine Street Dental statement, so you can follow the numbers from one page to the other.

If you want more practice deciding which account is debited and which is credited, start with journal entry practice problems. Reconciliation entries are usually recorded with the other month-end work, so adjusting entries practice is a natural next step.