Bank reconciliation basics Updated November 2026

Adjusted bank balance

Adjusted bank balance = Bank statement balance + Deposits in transit - Outstanding checks, corrected for any bank errors. It shows what the bank balance would be if the bank had processed everything the company has recorded, and it must equal the adjusted book balance.

Syntax

Adjusted bank balance = Bank statement balance + Deposits in transit - Outstanding checks +/- Bank errors

Part	What it is
`Bank statement balance`	Ending balance printed on the statement
`Deposits in transit`	Deposits recorded in the books that the bank has not yet credited; add
`Outstanding checks`	Checks written and recorded that have not cleared; subtract
`Bank errors`	Mistakes by the bank; add back a wrong charge, subtract a wrong credit

Examples

Statement balance 8,000
Deposits in transit 1,500
Outstanding checks 2,200

Result: 8,000 + 1,500 - 2,200 = 7,300

Statement balance 3,450
Deposit in transit 600
Outstanding checks: #301 120, #305 480
Bank error: another company's check 250 charged to our account

Result: 3,450 + 600 - 120 - 480 + 250 = 3,700

Statement balance 1,000
Outstanding checks 1,300
Deposit in transit 0

Result: 1,000 - 1,300 = -300 (an overdraft once the checks clear); the books should also show -300 after adjustment.

Common mistakes

Subtracting bank service charges from the bank balance: the bank already took them; they go on the book side.
Adding interest earned to the bank side: the statement already includes it.
Treating a check that cleared for the wrong amount as outstanding: it is a bank error (or book error), not a timing difference.

Practice Adjusted bank balance

These drills check your answer on live data, free, no account needed.

A deposit the bank has not seenClassify every line on the bank statement and in the cash book, then enter the adjusted bank and book balances.
Checks still in the mailClassify every line on the bank statement and in the cash book, then enter the adjusted bank and book balances.
Both kinds of timing differenceClassify every line on the bank statement and in the cash book, then enter the adjusted bank and book balances.

Questions

Why add deposits in transit and subtract outstanding checks?

Because the books already include them and the bank does not. Adjusting the bank balance for them makes it comparable to the books.

Does the adjusted bank balance ever need a journal entry?

No. Everything on the bank side is a timing difference or a bank mistake. Only book-side items are posted.

Adjusted book balanceAdjusted book balance = ledger cash + interest + notes collected - service charges - NSF checks, plus or minus book errors. Examples and the matching entries.
Deposits in transitA deposit in transit is cash recorded in the books that the bank has not yet credited. Add it to the bank statement balance and make no journal entry.
Outstanding checksAn outstanding check has been written and recorded but has not cleared the bank. Subtract the total from the statement balance and carry unpaid ones forward.
Bank errorsA bank error is a mistake on the statement, such as another company's check charged to your account. Correct it on the bank side, no entry, and tell the bank.