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Journal Entry for Reconciliation Discrepancy – Simple Guide

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The key to recording a journal entry for a reconciliation discrepancy is to identify the cause of the difference.

We’ve all experienced it. No matter the type of reconciliation, there are always troublesome figures preventing us from signing off and going home at 5.

In this post, we present a simple guideline that you can use to address those differences. We also listed common types of reconciliation discrepancies below to help you fix the issue or understand the process.

Simple method – Identify and Adjust

  1. Try to identify what caused the discrepancy in the reconciliation by comparing the two sets of records.
    • If the list of transactions is short, start with the largest number and compare it against two sets of records. Sorting it by the largest to the smallest will help you find the culprit.
    • If the list of transactions is long, you can perform a vlookup and see which item is missing from the records. If there is no unique identifier (ex, line number, series number) to perform the vlookup, you can create one using the “concatenate” feature.
  2. Once you have identified the culprit, record a journal entry to adjust the ledger/book balance or update the sub-ledger accordingly.

Here are some common types of reconciliation discrepancies and how to resolve them.

Bank Reconciliation Discrepancy

Problem #1: Payment made/wire disbursed/check mailed in the Cash ledger, but the disbursement is missing or not cleared on the Bank Statement.

Solution: Reverse the payment journal entry recorded in the ledger by debiting Cash and crediting Clearing (balance sheet account) or AP, and remember to reverse this adjustment entry again once the payment is cleared from the bank.

Note 1: if you have to credit any expense or P&L account to reverse the journal entry, be careful with the timing/cross-period P&L issue. The safest bet is to credit a balance sheet account such as Clearing. When the payment is cleared by the bank, simply reverse this journal entry again so the P&L account stays unaffected.

Note 2: If you choose to credit the AP account, make sure you leave a note that it’s due to bank clearance so you don’t end up double paying the supplier.

Note 3: If it’s due to common reasons such as outstanding checks, many businesses choose to note it on their bank reconciliation sheet instead of recording a journal entry.

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Problem #2: Cash disbursed/withdrawn in the bank statement, but the journal entry is missing from the Cash ledger

Solution: Figure out what the payment is about and record a journal entry in the ledger

Problem #3: Cash deposited in the bank statement, but the journal entry is missing from the Cash ledger

Solution: Figure out what the deposit is about and record a journal entry in the ledger

Problem #4: Cash or check deposited in the Cash ledger but is missing or not cleared on the Bank Statement

Solution: Reverse the check/cash deposited journal entry in the ledger by debiting AR or Clearing (balance sheet account) and crediting Cash, and remember to reverse this adjustment entry again once the deposit is cleared from the bank.

Note: if you have to debit any revenue or P&L account to reverse the journal entry, be careful with the timing/cross-period P&L issue. The safest bet is to debit a balance sheet account such as Clearing. When the payment is cleared by the bank, simply reverse this journal entry again so the P&L account stays unaffected.

Note 2: If it’s due to common reasons such as waiting for the deposit to be finalized, many businesses choose to note it on their bank reconciliation sheet instead of recording a journal entry.

Problem #5: Bank charges appeared on the bank statement but not in the Cash ledger.

Solution: Record a bank fee in the ledger by debiting Bank fees/charges (expense account) and crediting Cash

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Problem #6: Interest appeared on the bank statement but not in the Cash ledger.

Solution: Record an interest income in the ledger by debiting Cash and crediting Interest Income (revenue account.)

Balance Sheet Reconciliation Discrepancy

Problem #1: AR Aging does not agree to the ending balance of the AR ledger account

Solution: Identify the cause of the difference

  • If AR aging has more balance than the actual AR balance, 
    • Adjust AR aging if it’s missing a cash deposit or AR write-off
    • Adjust the AR ledger for any erroneous journal entries (below is an example).

  • If AR aging has less balance than the actual AR balance
    • Adjust AR aging for any cash deposit that has yet to be collected or AR balance that was written off mistakenly.
    • Adjust the AR ledger for any erroneous journal entries (below is an example).

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Problem #2: AP Aging does not agree to the ending balance of the AP ledger account

Solution: Identify the cause of the difference

  • If AP aging has more balance than the actual AP balance, 
    • Adjust AP aging if it’s missing a cash disbursement. 
    • Adjust the AP ledger for any journal entries recorded erroneously (below is an example).

  • If AP aging has less balance than the actual AP balance
    • Adjust AP aging for any cash disbursement that hasn’t been processed yet
    • Adjust the Cash ledger for any erroneous journal entries (below is an example).

Problem #3: Fixed Assets sub-ledger does not agree to the ending balance of the FA ledger account

Solution: Identify the cause of the difference

  • If the Fixed Assets sub-ledger has more balance than the actual FA balance, 
    • Adjust Fixed Assets sub-ledger – is it missing a write-off, disposal, or transfer?
    • Adjust FA ledger account – is it missing a journal entry of newly purchased or transferred Fixed Assets?

  • If the Fixed Assets sub-ledger has less balance than the actual FA balance
    • Adjust Fixed Assets sub-ledger – is it missing a newly purchased or transferred Fixed Assets?
    • Adjust FA ledger account – is it missing a journal entry for write-off, disposal, or transfer?

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Problem #4: The inventory sub-ledger does not agree to the ending balance of the Inventory ledger account

Solution: Identify the cause of the difference

  • There are different types of inventory accounts with various kinds of activities that will affect the inventory balance. 
  • However, the same principle can be applied – identify what has caused the difference between the sub-ledger and the ledger/book, then either adjust the sub-ledger or book an entry to adjust the ledger/book balance. Below is an example:

Other tips

  • Certain adjustments, such as those differences between the Bank Statement and Ledger due to processing/clearance, may be temporary. Keep a note of them, as you may have to reverse the journal entry once the transaction is cleared.
  • Documenting any adjustments made to the sub-ledger or the ledger account is always a good practice. It’s very common to get questions from auditors or reviewers on why certain adjustments were made. Leaving an internal note is always helpful.
  • Have another person look at the discrepancy if you need more assurance with your findings. An experienced accountant may have seen the discrepancy in the past and can offer advice quickly.

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