Booksmrt / Cash and reconciliation
A bank reconciliation you can audit, not just approve
Most reconciliation guides end with a checklist. This one gives you the numbers, the bridge, the correcting entry, and the evidence standard a second reviewer should demand.
Bank statement
- Ending balance
- $18,410
- Deposit in transit
- +$1,250
- Outstanding checks
- −$3,480
- Adjusted bank
- $16,180
Company ledger
- Cash balance
- $16,225
- Missing service fee
- Not recorded
- Timing entries needed
- None
- Corrected books
- $16,225
The bank side already ties. Use the statement to support one journal entry, then see whether the ledger agrees.
A bank reconciliation is complete only when the adjusted bank balance and the corrected book balance agree, every reconciling item has identifiable support, and book-side items have been posted. Matching a software screen to zero is not enough: deposits in transit and outstanding checks must clear after period-end, while bank fees, interest, and errors must be recorded in the ledger.
Start with two independent balances
The statement ending balance and the ledger cash balance are different evidence. The bank reports what cleared through its system by the cutoff date; the ledger reports what the business recorded. A reconciliation explains timing differences and errors without forcing either source to mimic the other.
In this worked file, the June 30 statement ends at $18,410 while the general ledger shows $16,225. That $2,185 gap is not itself an error. The question is whether named, dated items explain all of it and whether the items belong on the bank side or the book side.
Source notes: Publication 583: Starting a Business and Keeping Records
Build the bank-side bridge
Add deposits recorded in the books before June 30 that the bank processed in July. Subtract checks or electronic payments recorded in the books before June 30 that the bank processed later. The result is the adjusted bank balance, not a new ledger balance.
Here, a $1,250 card settlement dated June 30 reached the bank on July 1. Checks 1048 and 1051, totaling $3,480, were issued and recorded in June but cleared in July. The calculation is $18,410 + $1,250 − $3,480 = $16,180.
- Trace the $1,250 deposit to the processor settlement and the July bank activity.
- Trace each outstanding check to the check register, payee support, and later clearing date.
- Escalate old items; a reconciling item is not permanent permission for a difference.
Source notes: Publication 583: Starting a Business and Keeping Records · How should I record my business transactions?
| Line | Bank side | Book side | Evidence |
|---|---|---|---|
| Ending balance | $18,410 | $16,225 | June statement / June cash ledger |
| June 30 card deposit | +$1,250 | — | Processor batch P-0630; bank cleared July 1 |
| Check 1048 | −$2,800 | — | Vendor invoice; bank cleared July 2 |
| Check 1051 | −$680 | — | Repair invoice; bank cleared July 3 |
| Bank service fee | — | −$45 | June statement; entry BR-0630 |
| Adjusted / corrected balance | $16,180 | $16,180 | Difference: $0 |
Correct the books without plugging cash
The bank statement includes a $45 service fee that the company had not recorded. That is a book-side item: debit bank fees and credit cash for $45. The corrected ledger balance becomes $16,180.
Do not post a journal entry for the deposit in transit or the outstanding checks again. They already exist in the books. Recording them a second time would create the appearance of agreement while duplicating cash activity.
Source notes: How should I record my business transactions? · Publication 583: Starting a Business and Keeping Records
- Debit · Bank fees
- $45
- Credit · Cash
- $45
Document: June statement · Posting reference: BR-0630
Prove the timing items after month-end
A reconciling item is a claim about what happened after the cutoff. Test that claim. The deposit should appear in the next bank period for the same amount. Outstanding payments should clear to the same payees and amounts, or remain on a documented follow-up list.
A reviewer should be able to move from the reconciliation to the June statement, ledger, deposit report, check images, and July statement without relying on a preparer's memory. The IRS recordkeeping guidance emphasizes that books should be supported by the documents created by business transactions.
Source notes: Publication 583: Starting a Business and Keeping Records
Review the pattern, not only the ending zero
Repeated deposits in transit may indicate a normal processor delay, but growing amounts can signal cutoff errors. Old outstanding checks may require reissuance, voiding, unclaimed-property review, or fraud investigation. Recurring unexplained bank adjustments can indicate that the account feed is incomplete.
The control objective is not merely a zero difference. It is a complete, timely, reproducible explanation of cash. Keep the reconciliation, statement, ledger detail, support for every open item, correcting entry, preparer, reviewer, and completion date together.
Source notes: Publication 583: Starting a Business and Keeping Records · What kind of records should I keep?