Bank errors — though rare— do occur. When they do, you must work to ensure that your books match the actual bank balances by accounting for the errors. This requires that you not only adjust the balance in the books, but also prepare a journal entry in the general ledger reflecting the adjustments. Make adjustments as soon as they occur for accuracy, or as soon as you notice them when doing your bank reconciliation after receiving a bank statement.
Make the necessary adjustments to the bank statement to correct the error. Add or deduct the amount of the error to the bank statement, then contact the bank and tell them the nature of the error and the amount.
Adjust the cash account to account for the error. Add or deduct the same error amount from the cash account that you used with the bank statement to balance the two.
Write a journal entry to increase the cash balance if the bank error added money to your accounts. Debit cash in the journal by writing "Cash" on the first journal line and the amount of the error in the debit column of the journal. Go to the line right below it in the journal, indent the entry slightly, then write the account name affected by the error and credit the amount of money involved. For example, if the error were to the interest earned by your company, you would use the account name “Interest earned” on the second line of the journal.
Write a journal entry to decrease the cash balance if the error results in a cash loss. Debit the account affected by the error amount on the first line of the journal entry, and on the next line of the journal credit cash by the amount of the error.
Date all journal entries with the date that you make the entry.
Larry Simmons is a freelance writer and expert in the fusion of computer technology and business. He has a B.S. in economics, an M.S. in information systems, an M.S. in communications technology, as well as significant work towards an M.B.A. in finance. He's published several hundred articles with Demand Studios.