# Negative Reconciling Items and Sign Errors

- Author: PreciseBankFlow (https://www.precisebankflow.com)
- Published: 2024-11-14
- Updated: 2024-11-14
- Category: Finding reconciliation errors
- Canonical: https://www.precisebankflow.com/blog/negative-reconciling-items

> What negative reconciling items mean on a bank reconciliation, how a sign error doubles a difference and the few cases where a negative item is right.
Negative reconciling items are lines on a bank reconciliation whose sign runs against their type, such as a negative outstanding check or a negative deposit in transit. A few are correct. Most are sign errors: an amount entered the wrong way round, which moves the reconciliation by twice its size.

## What is a negative reconciling item on a bank reconciliation?

A negative reconciling item is a reconciling line carrying the opposite sign from the one its category normally has. Outstanding checks normally reduce the bank balance, and deposits in transit normally increase it. When an outstanding check appears as a negative number, the line is really adding to the balance, which no unpaid check can do.

Each category on a bank reconciliation has one natural direction. The table shows the usual sign of each. Treat it as a reference, and treat any line that breaks it as a question.

| Reconciling item | Side | Normal effect | What a negative one implies |
| --- | --- | --- | --- |
| Deposit in transit | Bank | Adds to bank balance | Money leaving that the bank has not yet seen |
| Outstanding check | Bank | Subtracts from bank balance | A credit to cash filed as a check, often a void or refund |
| Bank error, over-debit | Bank | Adds back to bank balance | The bank over-credited instead |
| Service charge not booked | Book | Subtracts from book balance | A fee refund, or a fee keyed as income |
| Interest not booked | Book | Adds to book balance | An interest reversal, or a sign slip |
| Returned deposit (NSF) | Book | Subtracts from book balance | A returned item that was redeposited |

Many reconciliation templates hide the sign. They show outstanding checks as positive numbers under a "less" heading and subtract the column total. A negative number typed into that column is subtracted as a negative, which means added. The screen looks tidy while the arithmetic goes the wrong way.

## How a sign error doubles the reconciliation difference

A sign error is an amount entered with the wrong direction, such as a deposit typed as a withdrawal. It doubles the effect on the reconciliation because the true amount is missing and its opposite is present. The gap equals twice the item, so halving the gap gives you the amount to search for.

### A worked example: a $315.00 deposit entered as negative

The figures are an example. On May 31 a company deposits a $315.00 customer check after the bank's cut-off. The preparer lists it as a deposit in transit, but types −315.00.

- Balance per bank: $12,480.00
- Deposits in transit as entered: −$315.00
- Outstanding checks: $2,105.00
- Adjusted bank balance as computed: $12,480.00 − $315.00 − $2,105.00 = $10,060.00
- Adjusted book balance: $10,690.00
- Gap: $630.00

The deposit should have added $315.00, giving $12,480.00 + $315.00 − $2,105.00 = $10,690.00. Instead it subtracted $315.00, so the gap is $630.00, twice the item.

The habit to build: whenever the gap is an even amount, halve it and search the reconciling items and the month's ledger for that figure. If you find it with the wrong sign, you have your answer. Sign errors also occur in the ledger itself, such as a customer refund entered as a deposit, and the same halving test finds those.

## When is a negative reconciling item correct?

A negative reconciling item is correct when the underlying transaction really moves money in the opposite direction from its category's usual flow. These cases are rare, so each one needs a short note on the reconciliation saying what it is and when it should clear.

The legitimate cases are few:

- **A deposit batch that nets to a withdrawal.** If refunds or chargebacks in a recorded batch exceed the sales in it, and the bank has not yet processed the batch, the deposit in transit can be negative.
- **A reversal recorded before the bank processed it.** If you recorded a reversal of a deposit at month-end and the bank takes it out the next day, it is a negative deposit in transit until then.
- **A bank error in your favour.** If the bank credited an amount it should not have, you subtract it from the bank balance, which is the reverse of the usual bank-error adjustment.
- **A refunded fee you have not booked.** A bank fee refund the bank has posted but your books do not show is a book-side increase, the reverse of a fee.

What these have in common is a source document that proves the direction: a batch report, a reversal confirmation, a bank notice. If you cannot point to one, the negative sign is probably a mistake.

The basis of accounting does not change any of this. Books kept on the cash basis reconcile to the bank with the same signs and the same categories; the differences are in which book-side items exist at all, covered in [bank reconciliation in cash basis accounting](/blog/bank-reconciliation-in-cash-basis-accounting).

## Clearing a negative reconciling item that should not exist

To clear a negative reconciling item that should not exist, trace it back to the transaction it came from, decide what that transaction really was, and correct the entry or the reconciliation line. Do not offset it with a second item of the opposite sign, which leaves two wrong lines instead of one.

Work through it in order:

1. **Find where the line came from.** Was it typed on the reconciliation, or carried from the ledger? A typed line is fixed on the reconciliation. A ledger line needs a ledger correction.
2. **Read the source document.** A voided check recorded as a negative check is the classic case. The void should cancel the original outstanding check, so both lines should drop off together.
3. **Look for its partner.** A negative outstanding check of $640.00 often sits beside a positive $640.00 outstanding check, the original. Remove both from the list, and confirm the void is recorded in the ledger.
4. **Recompute the gap.** If removing a bad negative item does not close the gap, it may be hiding a second error.

### What a lingering negative item usually means

A negative item that rolls forward month after month without clearing is a warning. It is often the remains of an earlier forced balance, a figure someone entered to make one month agree. That habit, and why it gets worse over time, is the subject of [why plugging a bank reconciliation backfires](/blog/plugging-a-bank-reconciliation).

If research cannot explain a small old negative item, it may in the end be written off, but only under a threshold, with approval and a memo. The conditions are set out in [writing off an unreconciled difference](/blog/write-off-unreconciled-difference). A large unexplained negative item should never be written off without finding its source.

PreciseBankFlow lists each unexplained difference as an exception with its evidence instead of adjusting it to fit, so a doubled gap from a sign slip reaches you as a figure to halve, not a balance someone forced. More is on the [PreciseBankFlow homepage](/).