When preparing a bank reconciliation, a bank service charge is reflected as a deduction from the bank balance. This means that the service charge will be subtracted from the balance that the bank has reported.
To account for the bank service charge accurately, it should be noted in the reconciliation process as an adjustment to the bank statement balance. The main reason for this is that the bank balance reported may not accurately reflect all transactions the account holder has made, including bank fees.
In the reconciliation statement, you typically will follow these steps:
- Start with the ending bank balance as shown on the bank statement.
- Subtract any outstanding checks that have not yet cleared the bank.
- Subtract the amount of any service charges that have been applied by the bank.
- Add any deposits in transit that have not yet been credited to the bank balance.
Once you have made these adjustments, you’ll arrive at the adjusted bank balance which should match your company’s cash balance in the accounting records. Keeping track of bank service charges helps ensure that your financial statements are accurate and reflect true cash positions.