Bank Reconciliation — Accounting Entries
Learn how to reconcile the bank statement with the company’s bank ledger.
This guide covers outstanding cheques, deposits in transit, bank charges,
direct credits, standing instructions, bounced customer cheques, and
corrections of accounting errors.
A bank reconciliation explains the difference between the bank balance in
the accounting records and the balance shown by the bank statement.
Timing differences generally require no journal entry. Entries are needed
when a transaction appears on the bank statement but has not been recorded
in the books, or when an error in the books must be corrected.
Tax entries are excluded from these examples.
1. Cheque issued to a supplier but not yet presented
Situation: The business issued a cheque for ₹25,000 to a supplier and recorded the payment in its books. At month-end, the cheque has not yet been presented to the bank.
Journal entry: No additional entry is required.
Why? The business has already recorded the payment by reducing its bank ledger balance. The bank has not yet processed the cheque.
Reconciliation treatment: Deduct the outstanding cheque from the bank statement balance when reconciling from the bank statement to the adjusted book balance.
Accounting logic: This is a timing difference, not an accounting error. Do not record the payment twice.
2. Deposit recorded in the books but not yet credited by the bank
Situation: The business deposited customer receipts of ₹40,000 on the last day of the month. The deposit is recorded in the books but has not yet appeared on the bank statement.
Journal entry: No additional entry is required if the original receipt has been correctly recorded.
Why? The business has recognised the receipt, but the bank has not yet processed the deposit.
Reconciliation treatment: Add the deposit in transit to the bank statement balance when reconciling to the adjusted book balance.
Accounting logic: This is a timing difference. Verify that the deposit subsequently appears on the bank statement.
3. Bank charges appear on the statement but not in the books
Situation: The bank deducts charges of ₹750. The transaction appears on the bank statement but has not yet been recorded in the accounting system.
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Bank Charges Expense | 750 | — |
| Bank Account | — | 750 |
Why this entry? The bank has already deducted the amount, so the accounting records must reflect the expense and reduction in cash.
Accounting logic: Record bank-originated transactions that are missing from the books.
4. Interest credited by the bank but not recorded
Situation: The bank credits ₹2,000 of interest to the business bank account. The interest has not yet been recorded in the books.
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Bank Account | 2,000 | — |
| Interest Income | — | 2,000 |
Why this entry? The bank balance has increased and the business has earned interest income.
Accounting logic: Record the bank credit and corresponding income when it has not already been recognised.
5. Customer transfers money directly to the bank
Situation: A customer transfers ₹65,000 directly into the business bank account to settle an outstanding invoice. The receipt appears on the bank statement but is missing from the books.
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Bank Account | 65,000 | — |
| Accounts Receivable | — | 65,000 |
Why this entry? The business has received money from a customer who owed it money.
Accounting logic: Debit bank and credit accounts receivable to clear the outstanding customer balance. Do not recognise revenue again if the original invoice was already recorded.
6. Bank pays a recurring business expense
Situation: The bank automatically deducts ₹3,500 for a monthly software subscription. The payment appears on the statement but is missing from the books.
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Software Subscription Expense | 3,500 | — |
| Bank Account | — | 3,500 |
Why this entry? The bank has paid a business expense on the company’s behalf.
Accounting logic: Record the expense in the correct accounting period and reduce the bank balance.
Control check: Confirm that the payment is authorised and relates to the business before posting it.
7. A customer’s cheque is dishonoured
Situation: A customer had paid ₹15,000 by cheque, and the business recorded the receipt. The bank subsequently returns the cheque unpaid and reverses the credit.
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Accounts Receivable | 15,000 | — |
| Bank Account | — | 15,000 |
Why this entry? The earlier receipt has been reversed by the bank, and the customer still owes the amount.
Accounting logic: Restore the receivable and reduce the bank balance. The original sales invoice remains recorded unless there is a separate reason to adjust it.
8. Bank payment was recorded for the wrong amount
Situation: A supplier payment of ₹12,000 was made and correctly processed by the bank, but the accounting system recorded a payment of ₹21,000. The books therefore reduced the bank balance by ₹9,000 too much.
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Bank Account | 9,000 | — |
| Accounts Payable | — | 9,000 |
Why this entry? The books recorded a payment that was ₹9,000 greater than the actual payment.
Accounting logic: This correction assumes the entire incorrect payment was posted against the supplier’s payable. The correction restores the bank balance and restores the corresponding payable.
Important: If the original payment was posted to another account, correct that account instead. Always inspect the original entry before posting a correction.
9. Bank statement contains an unexplained debit
Situation: The bank statement shows an unauthorised or unexplained debit of ₹8,000. The business has not identified the transaction and is investigating it with the bank.
Journal entry: Do not automatically classify the amount as a business expense.
Why? The nature and accounting treatment of the transaction have not yet been established.
Accounting treatment: Investigate the debit, contact the bank, and review the relevant evidence. If the bank confirms an error and reverses the transaction, no expense entry may be necessary. If the amount represents a genuine business transaction, record it in the appropriate account.
Important: If a reporting date arrives before the matter is resolved, assess the appropriate accounting treatment and disclosures based on the facts and applicable accounting framework.
10. Bank statement and books differ because of an unrecorded standing instruction
Situation: The bank automatically transfers ₹20,000 from the business account to repay loan principal. The payment appears on the bank statement but has not been recorded in the accounting system.
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Loan Payable | 20,000 | — |
| Bank Account | — | 20,000 |
Why this entry? The bank has settled part of the business’s loan obligation automatically.
Accounting logic: Record the principal repayment to reduce both the loan liability and bank balance.
Important: If the standing instruction also includes interest, split the payment between principal and interest using the lender’s statement or repayment schedule.
Bank reconciliation checklist
- Obtain the bank statement for the reconciliation period.
- Compare statement transactions with the bank ledger.
- Identify outstanding cheques and deposits in transit.
- Record bank charges, interest, direct credits, and automatic payments missing from the books.
- Investigate returned cheques and failed transactions.
- Correct book errors using the original transaction as evidence.
- Do not treat every unexplained bank movement as an expense.
- Verify that outstanding timing differences clear in a subsequent period.
- Investigate old or unusual reconciling items.
- Ensure the reconciliation explains the difference between the book and bank statement balances.
A bank reconciliation does not mean forcing the book balance to equal the
bank statement balance through a journal entry. First identify the cause
of each difference. Timing differences are reconciled; missing transactions
and accounting errors are corrected when supported by evidence.