Adjusting Entries for Bank Reconciliation
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We need to adjust the our lemonade stand's Cash account balance from $800 to $870.
Bank's Cash Balance
| Per Bank Statement | $850 |
| Deposits outstanding | $170 |
| Checks outstanding | ($200) |
| Bank error | $50 |
| Bank Balance per Reconciliation | $870 |
Company's Cash Balance
| Per General Ledger | $800 |
| Note collected | $200 |
| Interest earned | $20 |
| Service fees | ($50) |
| NSF Checks | ($100) |
| Company Balance per Reconciliation | $870 |
You'll only write adjusting entries on the Company's Cash Balance side, because we're writing journal entries from the company's perspective!
PRO TIP: Wanna see how I created these? Look below!
| Transaction | Debit | Credit |
|---|---|---|
| Cash | $220 | |
| Note Receivable | $200 | |
| Interest Revenue | $20 |
| Transaction | Debit | Credit |
|---|---|---|
| Service Fee Expense | $50 | |
| Accounts Receivable | $100 | |
| Cash | $150 |
Adjusting entry to increase Cash
Bank's Cash Balance
| Per Bank Statement | $850 |
| Checks outstanding | ($200) |
| Deposits outstanding | $170 |
| Bank error | $50 |
| Bank Balance per Reconciliation | $870 |
Company's Cash Balance
| Per General Ledger | $800 |
| Note receivable | $200 |
| Interest earned | $20 |
| Service fees | ($50) |
| NSF checks | ($100) |
| Company Balance per Reconciliation | $870 |
The blue underlined text signals...
- We're recognizing a Note receivable through reconciliation. ➡️ We'll reference the Notes Receivable account.
- We're recognizing Interest earned through reconciliation. ➡️ This serves as revenue and will be filed under the Interest Revenue account.
- Both of these items are increasing our cash. ➡️ We'll store this in the Cash account.
| Transaction | Debit | Credit |
|---|---|---|
| ??? | ??? | |
| Notes Receivable | $200 | |
| ??? | ??? |
The reason is...
- During reconciliation, we realized that we've "cashed-in" (-) on a note we lent out. The borrower is paying us back for it and no longer owes the note balance.
- This was represented through Notes Receivable.
- Which is an asset account, and therefore has a normal debit balance.
- So, to decrease it by $200, we'll credit it.
| Transaction | Debit | Credit |
|---|---|---|
| ??? | ??? | |
| Note Receivable | $200 | |
| Interest Revenue | $20 |
The reason is...
- During reconciliation we realized that we gained (+) revenue through interest on a note we lent out.
- This is represented through Interest Revenue.
- Which is a revenue account, and therefore has a normal credit balance.
- So, to increase it by $20, we'll credit it.
| Transaction | Debit | Credit |
|---|---|---|
| Cash | $220 | |
| Note Receivable | $200 | |
| Interest Revenue | $20 |
The reason is...
- We have obtained (+) cash through the note collected ($200) and the interest revenue earned ($20).
- This is represented through Cash.
- Which is an asset account, and therefore has a normal debit balance.
- So, to increase it by
$200 + $20 = $220, we'll debit it.
Adjusting entry to decrease Cash
Bank's Cash Balance
| Per Bank Statement | $850 |
| Checks outstanding | ($200) |
| Deposits outstanding | $170 |
| Bank error | $50 |
| Bank Balance per Reconciliation | $870 |
Company's Cash Balance
| Per General Ledger | $800 |
| Note receivable | $200 |
| Interest earned | $20 |
| Service fees | ($50) |
| NSF checks | ($100) |
| Company Balance per Reconciliation | $870 |
The blue underlined text signals...
- We're recognizing Service fees during reconciliation. ➡️ We'll expense these through the Service Fee Expense account.
- We're recognizing NSF checks during reconciliation. ➡️ The customer will pay us for the balance of their non-sufficient funds check in the future, so we'll store it in Accounts Receivable.
- Both of these items are decreasing our cash. ➡️ We'll take them out of the Cash account.
| Transaction | Debit | Credit |
|---|---|---|
| Service Fee Expense | $50 | |
| ??? | ??? | |
| ??? | ??? |
The reason is...
- During reconciliation, we have incurred an expense (+) through service fees for our bank.
- This is represented through Service Fee Expense.
- Which is an expense account, and therefore has a normal debit balance.
- So, to increase it by $50, we'll debit it.
| Transaction | Debit | Credit |
|---|---|---|
| Service Fee Expense | $50 | |
| Accounts Receivable | $100 | |
| ??? | ??? |
The reason is...
- During reconciliation, we realized we will be receiving (+) payment from a customer for their non-sufficient funds check at a later date.
- This is represented through Accounts Receivable.
- Which is an asset account, and therefore has a normal debit balance.
- So, to increase it by $100, we'll debit it.
| Transaction | Debit | Credit |
|---|---|---|
| Service Fee Expense | $50 | |
| Accounts Receivable | $100 | |
| Cash | $150 |
The reason is...
- We have lost (-) cash through the service fee ($50) and the NSF check ($100).
- This is represented through Cash.
- Which is an asset account, and therefore has a normal debit balance.
- So, to decrease it by
$50 + $100 = $150, we'll credit it.