01 / Learn the method
What you will learn
Reconcile a bank statement to a cash ledger; distinguish timing differences, bank errors and missing or incorrect ledger entries; produce balanced correcting journal entries with an evidence trail.
Start with two independent records
The bank statement describes cash movements recognized by the bank. The cash ledger describes movements recorded by the company. Their month-end balances can differ because of timing, omissions or errors. Calculate an adjusted bank balance and an adjusted ledger balance separately, then compare them.
For this case, deposits recorded by the company but not yet by the bank are added on the bank side. Payments recorded by the company but not yet cleared are subtracted there. Correct an identified bank error on the bank side. Missing or incorrect company entries change the ledger and need a journal entry. Never post a timing difference twice.
Smaller worked example
A separate company has a $5,000 bank balance and a $5,150 ledger balance. A $200 deposit is in transit, a $100 payment is outstanding and an unrecorded $50 bank fee is valid. Adjusted bank = $5,000 + $200 - $100 = $5,100. Adjusted ledger = $5,150 - $50 = $5,100. Journal: debit Bank fee expense $50, credit Cash $50. The deposit and payment need follow-up, not a second entry.
Cash increases are debits; cash decreases are credits in the company ledger. A bank statement’s debit / credit wording may use the bank’s perspective. This dataset uses explicitly signed cash movements to remove that ambiguity. The supplied case rules are simplified teaching rules, not a claim of universal US GAAP or IFRS compliance.
02 / Put it to work
Your assignment
You are preparing the 30 September 2026 bank reconciliation for fictional Cedar Services. All amounts are USD. Positive amounts are cash receipts and negative amounts are payments. The following are the complete September records; OPEN and CLOSE are balances, not transactions.
Cash ledger
| Reference | Description | USD |
|---|---|---|
| OPEN | Opening balance | 20,000 |
| C-905 | Customer receipt | 12,000 |
| P-910 | Supplier payment | -7,500 |
| P-915 | Payroll payment | -5,000 |
| P-920 | Supplier payment recorded | -990 |
| D-930 | Deposit recorded on 30 Sep | 4,000 |
| P-930 | Payment issued on 30 Sep | -1,100 |
| CLOSE | Closing ledger balance | 21,410 |
Bank statement
| Reference | Description | USD |
|---|---|---|
| OPEN | Opening balance | 20,000 |
| C-905 | Customer receipt | 12,000 |
| P-910 | Supplier payment | -7,500 |
| P-915 | Payroll payment | -5,000 |
| P-920 | Supplier payment cleared | -900 |
| F-930 | Bank fee | -60 |
| C-930 | Direct customer receipt | 500 |
| R-930 | Returned receipt | -800 |
| E-930 | Erroneous bank debit | -100 |
| CLOSE | Closing bank balance | 18,140 |
Supporting evidence
D-930: the deposit receipt confirms $4,000 lodged on 30 September and cleared on 1 October. P-930: the $1,100 payment cleared on 2 October. Both were correctly recorded in the ledger.
P-920: the approved supplier invoice and bank confirmation show $900. The company incorrectly debited Accounts payable and credited Cash by $990.
F-930: the $60 fee is valid and unrecorded. C-930: $500 directly settles an existing customer receivable and has not been recorded in the ledger; it is not new revenue.
R-930: an $800 receipt recorded before September was returned unpaid. No September reversal exists. Reinstate the receivable; collection follow-up remains open.
E-930: the bank confirmed the $100 debit belongs to another customer and will reverse it. The company has no corresponding transaction. There are no other differences.
Submit three things
-
Reconcile both balances, show every adjustment with its reference, and calculate the residual. First check that the complete records add to each supplied closing balance. Do not plug a difference.
-
Prepare justified correcting journal entries with debit and credit accounts and amounts. Calculate a debit-less-credit check. Explain why the remaining items need no ledger entry.
-
Write a review note identifying supporting evidence and next-period follow-up, including the returned receipt. Use the workbook’s working areas. Numerical tolerance is $0.01; all provided amounts are whole dollars.
Optional extension
Suppose the bank has not reversed E-930 by the next statement. Explain how you would retain the reconciling item, document the confirmation and escalate follow-up without making an unsupported ledger entry. Outside the scored core.
03 / Review your work
Try the assignment before opening the answer.
Open the worked answer and teaching notes
Worked reconciliation
| Bank side / USD | Adjustment |
|---|---|
| Statement closing balance | 18,140 |
| D-930 deposit in transit | +4,000 |
| P-930 outstanding payment | -1,100 |
| E-930 confirmed bank error | +100 |
| Adjusted bank | 21,140 |
| Ledger side / USD | Adjustment |
|---|---|
| Ledger closing balance | 21,410 |
| F-930 bank fee | -60 |
| C-930 direct receipt | +500 |
| R-930 returned receipt | -800 |
| P-920 correction of excess credit | +90 |
| Adjusted ledger | 21,140 |
| Bank less ledger residual | 0.00 |
The source records sum to their stated closing balances: $21,410 in the ledger and $18,140 at the bank. Net bank-side adjustments are +$3,000; net ledger-side adjustments are -$270. Both adjusted balances equal $21,140.
Correcting journal entries
| Reference | Debit | Credit |
|---|---|---|
| F-930 | Bank fee expense $60 | Cash $60 |
| C-930 | Cash $500 | Accounts receivable $500 |
| R-930 | Accounts receivable $800 | Cash $800 |
| P-920 | Cash $90 | Accounts payable $90 |
Total debits and credits are each $1,450. Net cash effect is $500 + $90 - $60 - $800 = -$270. P-920 restores both the excess cash credit and the excess payable debit; do not book a new expense. C-930 collects an existing receivable, so recognizing revenue again would double count it.
Review note
D-930 and P-930 are timing differences already recorded correctly; no second entry is needed. Keep the 1 and 2 October clearing evidence. Add E-930 back to the bank side and obtain the bank correction; the confirmed bank error is not a company expense. Post the four ledger corrections with supporting evidence. Assign Accounts receivable follow-up for the returned $800 receipt. Matching adjusted balances do not, by themselves, prove all ledger accounts are correct.
Scoring rubric - 100 points
| Dimension | Points | Awarding guidance |
|---|---|---|
| Calculation | 40 | Source closing totals 6; bank-side adjustments 9 (3 each); ledger-side adjustments 12 (3 each); both adjusted balances 5; balanced journal amounts 8 (2 per entry). |
| Classification | 25 | Timing versus bank error 9 (3 each); correct debit / credit accounts and reasons 12 (3 per entry); no duplicate revenue for C-930 4. |
| Controls / audit trail | 20 | References and evidence 6; formula residual 6; journal balance check 4; traceable formulas without plugs 4. |
| Communication | 15 | Clear conclusion 5; clearing / bank correction follow-up 6; returned-receipt collection follow-up 4. |
Use a $0.01 tolerance. Give partial credit for a correct method after one input mistake and avoid repeatedly deducting for that same error. Equivalent account names are acceptable where the economic treatment is identical. A zero reconciliation with unjustified entries does not earn classification credit. No universal passing score is prescribed.
Common mistakes and staged hints
Mistakes: posting the deposit or outstanding payment twice; treating the direct receipt as revenue; expensing the bank’s error; crediting Cash for the $90 correction; accepting a zero residual with unmatched supporting records.
Hint 1: match records by reference, not just amount. Hint 2: ask which record needs correction or is waiting for processing. Hint 3: the P-920 ledger amount reduced both Cash and Accounts payable too much; reverse only the excess.
Instructor use
Suggested 45-minute session: 8 minutes on the smaller example, 20 minutes matching and reconciliation, 10 minutes journal review, 7 minutes on evidence and follow-up. This is an untested timing estimate. For beginners label the side for each item; for stronger students remove those labels from a classroom copy while retaining all evidence.
Before class, open the student and solution workbooks in the intended application and check recalculation. Ask students why two matching adjusted balances do not guarantee correct account classification. Worked solutions are public learning aids, not secure exam answers. Do not treat this exercise score as a validated hiring prediction.
Continue this learning path
ACC-02 · Accruals, Prepayments and Month-End Cutoff
ACC-03 · Close the Books: From Trial Balance to Review Pack
AI-assisted synthetic teaching case. Expert review and native Excel / Sheets testing pending.