What Is a Bank Adjustment and How Does It Work?
Understand bank adjustments: learn what they are, why they occur, and how they impact your financial records for accurate reconciliation.
Bank adjustments are routine entries made by a financial institution to a customer’s account. These modifications reflect various transactions that may not originate directly from the account holder’s initiated activities. Understanding these adjustments is fundamental for effective financial management. They ensure account balances accurately reflect all inflows and outflows.
Understanding Bank Adjustments
A bank adjustment refers to a modification, either a debit or a credit, that a bank makes to a customer’s account balance. These adjustments can either increase the account balance, such as with deposited funds or earned interest, or decrease it, often due to fees or corrections. The bank typically initiates these changes to rectify errors, apply standard charges for services, or credit amounts owed to the account holder. These adjustments maintain the precision of financial records.
They fall into broad categories, including corrections for transactional errors, application of various banking fees, and the addition of credits like interest payments. For instance, a bank might make an adjustment to correct a misposted transaction or to apply a monthly service charge. These entries are distinct from regular deposits or withdrawals initiated directly by the account holder, as they reflect internal bank operations affecting the account.
Common Occurrences of Bank Adjustments
Bank adjustments often arise from various common transactions and operational necessities. One frequent type is bank service charges, which are fees levied for maintaining an account or for specific services. These can include monthly maintenance fees, ranging from approximately $5 to $25, or charges for excessive transactions. Another common adjustment is an an overdraft fee, typically around $35, incurred when a transaction exceeds the available funds in an account. Similarly, non-sufficient funds (NSF) fees, also known as bounced check fees, are charged when a check or other payment cannot be processed due to inadequate funds, with average fees ranging from $10 to $50.
Interest earned on deposits is another type of adjustment, appearing as a credit to the account. For savings accounts, banks often pay interest monthly, which increases the account balance. Conversely, interest charged on loans or lines of credit linked to an account would appear as a debit adjustment. Error corrections also lead to adjustments; for example, if a bank mistakenly credits or debits an incorrect amount, it will issue an adjustment to rectify the balance. Direct debits for automatic payments not previously recorded by the account holder, or direct credits such as incoming wire transfers or automated clearing house (ACH) deposits, also show up as bank adjustments.
Impact on Financial Records and Reconciliation
Bank adjustments are important for maintaining accurate financial records and appear on bank statements. A bank statement provides a detailed report of all transactions, including these adjustments, that occurred within a specific period, typically a month. Each entry on the statement usually includes a date, a description, and the amount, clearly indicating whether it was a debit or a credit to the account.
Bank reconciliation aligns internal financial records with bank records. Since bank adjustments may not be immediately known or recorded by the account holder, they create discrepancies between the book balance and the bank balance. To reconcile, one must identify items present on the bank statement but not in their own records, such as bank fees or interest earned, and then make corresponding entries.
For businesses, this involves making journal entries to adjust their cash account in the general ledger. For instance, a bank service charge would require a journal entry that debits an expense account and credits the cash account. Similarly, interest earned would be recorded by debiting cash and crediting an interest income account. This process ensures that the cash balance in the internal records accurately reflects the actual funds available, helping to detect errors or potential fraud.
Reviewing Bank Adjustments
Regularly reviewing bank statements is an important practice for identifying and understanding bank adjustments. Account holders should examine each transaction listed on their statement, paying close attention to the transaction date, the description, and the amount. Descriptions on statements often use abbreviations, such as “FEE” for various charges or “INT” for interest, which provide clues about the nature of the adjustment. This careful review helps confirm that all adjustments are legitimate and expected based on account activity or agreed-upon fees.
If an adjustment is unclear, or if it appears incorrect, contacting the bank promptly is advisable. Most financial institutions provide a customer service line or a secure messaging system for inquiries. When contacting the bank, it is helpful to have the statement readily available and to clearly state the transaction date, description, and amount of the adjustment in question. Banks investigate billing errors and resolve them within a specified timeframe.