Bank reconciliation basics Updated November 2026

Adjusted book balance

Adjusted book balance = Cash balance per books + Interest earned + Amounts collected by the bank - Service charges - NSF checks, corrected for book errors. Every item in this formula also needs a journal entry, because the ledger does not yet reflect it.

Syntax

Adjusted book balance = Book balance + Interest + Collections - Service charges - NSF checks +/- Book errors

Part	What it is
`Book balance`	Ending balance in the cash ledger (or check register) at the statement date
`Interest earned`	Credited by the bank, not yet recorded; add
`Collections`	Notes or customer payments the bank received for you; add
`Service charges and NSF checks`	Deducted by the bank, not yet recorded; subtract
`Book errors`	Company mistakes; adjust in the direction that corrects the ledger

Examples

Book balance 5,120
Interest earned 12
Service charge 25

Result: 5,120 + 12 - 25 = 5,107

Book balance 9,400
Note collected by bank 1,000 plus interest 30
NSF check from customer 180
Book error: check #88 written for 640 recorded as 460

Result: 9,400 + 1,030 - 180 - 180 = 10,070 (the check error understated the deduction by 180).

Book balance 2,000
Bank collection fee 10
Automatic loan payment 500 not yet recorded

Result: 2,000 - 10 - 500 = 1,490

Common mistakes

Adding deposits in transit to the books: they are already recorded there.
Subtracting an NSF check on the bank side: the bank already reversed it; the books must catch up.
Getting the direction of a book error wrong: ask whether the ledger is too high or too low, then move it toward the correct figure.

Practice Adjusted book balance

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

The monthly service chargeClassify every line on the bank statement and in the cash book, then enter the adjusted bank and book balances.
Interest earnedClassify every line on the bank statement and in the cash book, then enter the adjusted bank and book balances.
Everything from the bankClassify every line on the bank statement and in the cash book, then enter the adjusted bank and book balances.

Questions

Which items on the book side need journal entries?

All of them: fees, interest, collections, NSF checks and error corrections. Post them so the ledger equals the adjusted balance.

Is the adjusted book balance the same as the adjusted bank balance?

It must be. If they differ, something is missing or misclassified.

Adjusted bank balanceAdjusted bank balance = statement balance + deposits in transit - outstanding checks, plus or minus bank errors. Worked examples with exact results.
Bank reconciliation journal entriesThe journal entries that follow a bank reconciliation, one per book-side item: service charges, interest, NSF checks, notes collected, book errors.
NSF checkAn NSF (non-sufficient funds) check is a customer check the bank bounced after deposit. Subtract it from the book balance, reinstate the receivable, add fees.
Book errorsA book error is a company mistake in recording cash: a check entered for the wrong amount or a deposit recorded twice. Adjust the book side and correct it.