How Do You Solve a FAR Bank Reconciliation Without Getting Lost?
Bank reconciliations become much easier when you separate bank-side timing differences from book-side items that require accounting entries.
Start with the goal
Both sides should arrive at the same adjusted cash balance. You are reconciling two records of the same cash account.
Bank side
Deposits in transit were already recorded by the company but have not reached the bank statement, so they are added to the bank balance. Outstanding checks were already recorded by the company but have not cleared the bank, so they are subtracted from the bank balance.
Book side
Bank service charges, NSF checks, interest, electronic collections, and other bank-initiated items may be known by the bank before the company records them. Those typically require book adjustments and potentially journal entries.
Bank errors
If the bank made the error, correct the bank side. Do not automatically create a company journal entry for somebody else's mistake.
Book errors
If the company recorded a check or deposit incorrectly, adjust the books. Ask what should have been recorded, what was actually recorded, and what difference remains.
A clean SIM workflow
- Calculate adjusted bank balance.
- Calculate adjusted book balance.
- Confirm both balances agree.
- Record only necessary book-side journal entries.
Why candidates double-count items
Before entering anything, ask who already knows about the transaction: bank only, books only, both, or neither. That identifies where the adjustment belongs.
The takeaway
Bank reconciliation is a timing-and-error investigation between two records of the same cash.
Related Summit guides
FAQ
Do deposits in transit require a journal entry?
Normally they were already recorded by the company, so the issue is bank timing.
Do outstanding checks require another journal entry?
Normally no, because the company already recorded the checks.
Do bank service charges require a book entry?
Usually yes if the company has not recorded them yet.