This bank reconciliation example follows one fictional company through one month. The bank statement shows 27,846.50, the ledger shows 29,228.50, and the gap of 1,382.00 is fully explained by one deposit in transit, three outstanding checks, a fee, interest and an NSF check. Both sides end at 27,948.35.
The sample bank reconciliation: one month of a small business account
The example company is Harbor Street Supply, a fictional wholesaler with one operating account. This section sets out what the bank statement and the ledger show for September before any reconciling work starts. Every name and figure here is invented for illustration.
Assumptions
Harbor Street's August reconciliation closed with no outstanding checks and no deposits in transit, so the opening balances agree. The statement covers 1 to 30 September. The ledger records each check and deposit the day it is written or prepared.
What the bank statement shows
| Statement summary | Amount |
|---|---|
| Opening balance, 1 Sept | 24,931.50 |
| Deposits | 29,872.00 |
| Interest credited | 11.85 |
| Checks cleared | (25,676.85) |
| Returned deposit item (Delta Cafe) | (1,250.00) |
| Monthly service fee | (42.00) |
| Closing balance, 30 Sept | 27,846.50 |
The statement foots. Adding 24,931.50, 29,872.00 and 11.85 gives 54,815.35. Taking away 25,676.85, 1,250.00 and 42.00 leaves 27,846.50, which is the printed closing balance.
What the ledger shows
| Ledger summary | Amount |
|---|---|
| Opening balance, 1 Sept | 24,931.50 |
| Deposits recorded, including 30 Sept | 34,087.00 |
| Checks written | (29,790.00) |
| Balance per ledger, 30 Sept | 29,228.50 |
The ledger deposits are 4,215.00 higher than the statement deposits, and the ledger checks are 4,113.15 higher than the statement checks. The ledger also has no record of the interest, the fee or the returned deposit item. Those four facts are the whole reconciliation. The next three sections turn them into lines.
For the order of work behind this setup, see how to reconcile bank statements in seven steps, which uses a shorter statement to explain the footing and ticking steps.
Adjusting the bank balance in the example
The bank balance moves for items the ledger already holds and the bank has not yet recorded. In this example those are one deposit in transit and three outstanding checks. They are timing items: they need a line on the reconciliation and no journal entry.
The deposit in transit
Harbor Street prepared a deposit of 4,215.00 on 30 September, after the bank's cut-off. The ledger recorded it on the 30th, and the bank posted it on 1 October. This is a deposit in transit, and it increases the bank figure.
The outstanding checks
Three checks were written in September and had not cleared by the 30th:
| Check | Date written | Payee (fictional) | Amount |
|---|---|---|---|
| 2208 | 22 Sept | Lakeside Freight | 1,380.00 |
| 2211 | 26 Sept | Northgate Office Supply | 642.75 |
| 2213 | 29 Sept | Pinewood Packaging | 2,090.40 |
| Total | 4,113.15 |
Each check is in the ledger, since Harbor Street recorded them on the day they were written. None is on the statement. They lower the bank figure.
The bank-side calculation
| Bank side | Amount |
|---|---|
| Balance per bank statement | 27,846.50 |
| Add: deposit in transit | 4,215.00 |
| Less: outstanding checks (2208, 2211, 2213) | (4,113.15) |
| Adjusted bank balance | 27,948.35 |
Check the arithmetic: 27,846.50 plus 4,215.00 is 32,061.50, and 32,061.50 less 4,113.15 is 27,948.35. How long these items may sit, and which ones should worry you, is covered in outstanding checks and deposits in transit.
Book side of the example: fees, interest and an NSF check
The ledger balance moves for items the bank has recorded and the ledger has not. In this example those are a service fee, interest credited and a deposited check returned unpaid. Unlike the bank-side items, each one needs a journal entry, because the ledger is wrong until it is posted.
Bank service fee: 42.00
The bank charged a monthly service fee on the statement. Harbor Street's books had no entry. The fee lowers the ledger balance.
Interest credited: 11.85
The account earns a small amount of interest, which the bank credited and the ledger did not show. Interest raises the ledger balance.
The NSF check: 1,250.00
An NSF check is a check you deposited that the payer's bank refused to pay because the payer's account lacked the funds. Harbor Street deposited a 1,250.00 check from a customer, Delta Cafe, earlier in the month. The bank credited the deposit at the time and then reversed it when the check came back. The ledger still shows the deposit, so cash is overstated by 1,250.00. The customer's debt to Harbor Street is also back, since the sale has not been paid.
The book-side calculation
| Book side | Amount |
|---|---|
| Balance per ledger | 29,228.50 |
| Add: interest credited by the bank | 11.85 |
| Less: bank service fee | (42.00) |
| Less: NSF check, Delta Cafe | (1,250.00) |
| Adjusted book balance | 27,948.35 |
The arithmetic: 29,228.50 plus 11.85 is 29,240.35. Less 42.00 is 29,198.35. Less 1,250.00 is 27,948.35. For the general rule on which differences need an entry and which do not, read which bank statement differences need a journal entry.
Does the example bank reconciliation agree on both sides?
Yes. The adjusted bank balance and the adjusted book balance are both 27,948.35, so the difference is zero. The proof is to compare the two figures and then confirm the gap you started with equals the net of all reconciling items.
The starting gap is 29,228.50 less 27,846.50, or 1,382.00, with the ledger higher. Net the items by effect on that gap:
| Item | Effect on the gap |
|---|---|
| Deposit in transit (ledger has it, bank does not) | +4,215.00 |
| Outstanding checks (ledger has them, bank does not) | (4,113.15) |
| Interest (bank has it, ledger does not) | (11.85) |
| Service fee (bank has it, ledger does not) | +42.00 |
| NSF check (bank has it, ledger does not) | +1,250.00 |
| Net of all items | 1,382.00 |
The net equals the starting gap of 1,382.00. A second check works from the other direction: every item has a document behind it (a deposit slip, three check copies, a statement line for the fee and interest, and a bank notice for the NSF check). A reconciliation that agrees but has a line with no document is not finished.
A formal version of this reconciliation, with its heading block and sections, follows a standard layout, described in the standard bank reconciliation statement format. To build the same working in a spreadsheet, a bank reconciliation template for Excel lays out the columns and checks.
Edge case in the example: a transposition error divisible by nine
A transposition error swaps two adjacent digits when an amount is recorded, and the resulting difference is always divisible by nine. If a reconciliation will not agree and the leftover difference divides evenly by nine, look for a swapped pair in the entries before you look for anything else.
Suppose Harbor Street's first attempt did not agree. The adjusted bank balance was 27,948.35 and the adjusted book balance was 27,858.35, a difference of 90.00.
Why divisible by nine
Swapping two adjacent digits changes a number by nine times the difference between the digits, times a power of ten. The check for 450.00 recorded as 540.00 shows it: 540 less 450 is 90, which is 9 times 1 times 10. Because the digits 5 and 4 differ by one and sit in the hundreds and tens places, the gap is 90. Digits that differ by more produce larger multiples of nine.
Finding the line
Here the ledger would hold check 2209 at 540.00 while the bank cleared it at 450.00. A ledger that records an expense too high makes the ledger cash too low, which matches the book side being 90.00 short. Scan the cleared checks for one whose ledger amount and statement amount differ by 90.00. When you find it, post a correcting entry: debit cash 90.00 and credit the expense account the check was coded to by the same amount.
What the rule cannot do
Divisibility by nine is a clue, not proof. A decimal-point slip, such as recording 450.00 as 45.00, also produces a difference divisible by nine (405.00). Many unrelated errors can sum to a multiple of nine by chance. Treat it as a reason to look at swapped digits first, and confirm against the check copy or the bank image before correcting.
What journal entries does the bank reconciliation example produce?
The example produces three journal entries, one for each book-side item: the service fee, the interest and the NSF check. The deposit in transit and the three outstanding checks produce none. Together the entries lower cash by 1,280.15, which is the difference between 29,228.50 and 27,948.35.
All three would be dated 30 September.
| Entry | Debit | Credit | Amount |
|---|---|---|---|
| 1. Service fee | Bank service charges expense | Cash | 42.00 |
| 2. Interest | Cash | Interest income | 11.85 |
| 3. NSF check | Accounts receivable, Delta Cafe | Cash | 1,250.00 |
Entry 3 does not write the sale off. It moves the amount back to receivables, so Harbor Street can ask Delta Cafe for payment. A fee the bank charged for the returned item would need its own entry, and this statement shows none. After posting, the ledger cash balance is 27,948.35, which equals the adjusted figure on the reconciliation.
The cash effect: minus 42.00, plus 11.85 and minus 1,250.00 is minus 1,280.15, and 29,228.50 less 1,280.15 is 27,948.35. The reconciliation, the entries and the ledger now agree. Keep the reconciliation, the statement and the supporting documents together, and add preparer and reviewer sign-off. How a finished reconciliation is presented to a reviewer is shown in a reconciliation report sample for audit workpapers.
If you do this work for many clients, the statement-side steps (footing the statement and listing the lines that do not clear) are where the time goes. PreciseBankFlow is built to run those steps and hand you the list of differences to explain.