Any items that require an adjustment to the depositor’s book balance in a reconciliation will require entries to be recorded in the depositor’s accounting records. Examples include overdrafts, automatic deposits, automatic loans and monthly service charges. A last and perhaps special insurance is returned checks, also known as not sufficient funds (NSF).
Overdrafts arise when someone writes checks for more money than is in the account. Although banks dislike this action, many allow it in certain instances. Usually there will be an additional charge if an overdraft occurs. The correct action to take when this happens is to make a deposit to cover the overdraft and make an entry for any charges incurred. The proper entry to account for these charges is shown in diagram.
Electronic wire transfers have made automatic payroll bank deposits fairly common. If this is not recorded, the depositor’s books will be understated by the amount of the deposit as in the diagram.
Many banks allow for an automatic loan if the amount in a depositor’s account goes below a specified level. The bank will have additional charges for this service. Assuming that the bank loaned a depositor $450 on automatic loan, the depositor would make the following entry.
The interest on the loan would normally not be paid until the loan was paid off. Many checking accounts have monthly service charges for maintaining the account records. Others have a varied list of charges depending on the level of activity in the account. This may take the form of a per check, or per transaction charge. Check printing is often included as a charge to the account.
The last type of adjustment to the depositor’s books involves NSF or returned checks. Usually this action will require a multiple entry. This circumstance develops when a check a depositor submitted in a deposit is presented to the bank of the person who wrote the check, and the bank will not honour the check for lack of funds. This will require and entry to the cash account of the depositor as well as an adjustment to some other asset, usually accounts receivable.