How to Do a Bank Reconciliation, Step by Step
Your books say one balance, the bank says another. Reconciling the two each month is how errors, missed fees and duplicate entries get caught early.
To do a bank reconciliation, take the balance in your bookkeeping records and the balance on your bank statement for the same date, then account for every difference between them until both arrive at the same adjusted figure. Once they agree, you know your records reflect what really happened in that account. Most small businesses do this monthly, as soon as the statement is available.
Why the two balances rarely match at first
A gap between the books and the bank does not automatically mean something is wrong. The usual causes are timing and information the bank has that you have not recorded yet:
- Outstanding payments: checks or transfers you have recorded but the bank has not processed yet.
- Deposits in transit: money you have recorded as received that has not yet cleared into the account.
- Bank charges: monthly fees, transfer fees or overdraft costs taken directly by the bank.
- Interest earned on the balance.
- Payment processor payouts that arrive net of fees, so the deposit is smaller than the sales you recorded.
- Errors: amounts entered wrongly, transactions entered twice or not at all, or the bank's own mistakes.
The process in seven steps
- Pick a cut-off date, normally the statement's closing date, and gather the statement and your records up to that date.
- Start with the opening balance. Confirm that last period's reconciled balance matches this statement's opening balance. If it does not, an earlier period needs fixing first.
- Tick off matching items. Go through each deposit and withdrawal on the statement and find the same item in your books. Mark both.
- Adjust the bank side. Add deposits in transit and subtract outstanding payments from the statement balance. These are items your books already contain.
- Adjust the book side. Record anything the bank shows that your books lack: fees, interest, processor charges, direct debits you forgot to enter.
- Compare the adjusted balances. They should be identical. If not, look for the cause before moving on.
- Save the reconciliation with the date and who prepared it, and keep it with the statement.
A worked example
A hypothetical business reconciles its account at the end of the month. The figures are illustrative only.
| Bank side | Amount | Book side | Amount |
|---|---|---|---|
| Statement balance | 4,820 | Balance in the books | 5,100 |
| Add: deposit in transit | +600 | Add: interest earned | +5 |
| Less: outstanding payment | -350 | Less: monthly account fee | -20 |
| Less: card processor fee | -15 | ||
| Adjusted bank balance | 5,070 | Adjusted book balance | 5,070 |
Both sides land on 5,070, so the account is reconciled. Only the book-side adjustments (interest and fees) need new entries in the records; the bank-side items will clear by themselves next month and should be checked then.
When the figures won't agree
Run down this list, starting at the top:
- Was the opening balance already reconciled last month?
- Is the difference equal to a single transaction? Search for that amount.
- Is it exactly twice an amount? An item may have been entered on the wrong side, as money in instead of money out.
- Is the difference divisible by 9? That pattern often points to two digits swapped, such as 63 typed as 36.
- Has any transaction been entered twice, or dated in the wrong month?
Resist the temptation to post a small "balancing" entry to make the problem disappear. Unexplained differences can hide duplicate payments or unauthorised transactions, and they tend to grow.
Habits that make reconciliation quicker
- Reconcile every account the business uses, not only the main current account: card accounts, savings accounts (including any reserve held in a high-interest savings account) and payment platform balances.
- Treat wallets and payment apps as accounts in their own right. As cashless payments spread, more money passes through balances that never appear on a bank statement until they are paid out.
- Record sales gross and fees separately, so processor payouts can be matched cleanly.
- Use the bank feed in accounting software, but still review its suggested matches rather than accepting them all.
- Reconcile weekly if the account is busy; a month of high-volume transactions is much harder to untangle.
Reconciliation sits at the centre of the monthly routine described in our guide to bookkeeping basics, and it is what makes the month's profit and loss statement trustworthy.
Common questions
How often should I reconcile?
At least monthly. Busy accounts benefit from a weekly check, and any account should be reconciled before year-end figures go to an accountant.
Can someone else do it?
Yes, and separating duties is a sensible control: the person who reconciles ideally should not be the only person who makes payments.
General information, not accounting advice. If unexplained differences persist, or you suspect fraud, contact your bank and a qualified accountant promptly.