Bank reconciliation is the process of comparing your accounting records to your bank statement to confirm every transaction matches. You start with the statement’s ending balance, add deposits that haven’t cleared, subtract checks and payments that haven’t cleared, and compare the result to your book balance. If the two numbers agree, the account is reconciled. If they don’t, something is missing, duplicated, or entered incorrectly.
Why Does Bank Reconciliation Matter?
- It catches errors such as duplicates, typos, and missing entries
- It exposes fraud or unauthorized charges early
- It keeps reports accurate, since your profit and loss statement and tax figures depend on correct balances
- It supports tax filing, because reliable records mean fewer surprises
Reconciling before December 31 is especially important, since your tax preparer will rely on year-end numbers. Our year-end bookkeeping checklist shows where it fits.
How Do You Reconcile a Bank Account? Step by Step
- Get your bank statement for the period, and note the ending balance
- Confirm your beginning balance matches the last statement’s ending balance
- Compare each transaction on the statement to your books, and mark matches as cleared
- List deposits in transit, meaning deposits recorded in your books but not yet on the statement
- List outstanding payments, meaning checks or payments recorded but not yet cleared
- Record missing items such as bank fees, interest, or automatic payments
- Calculate the adjusted balance and compare it to your book balance
The core formula is:
Adjusted bank balance = Statement ending balance + Deposits in transit − Outstanding payments
This should equal your adjusted book balance. If it doesn’t, the difference is what you need to investigate.
What If the Numbers Don’t Match?
Look at the size of the gap. A difference divisible by 9 often points to transposed digits, while a difference equal to one transaction suggests a missing or duplicate entry. Our guide on what to do when a QuickBooks reconciliation won’t balance walks through the fixes. Uncategorized or misplaced items can also cause gaps, which we cover in our guide to fixing uncategorized transactions.
How Often Should You Reconcile?
Monthly is the minimum, as soon as your statement is available. Businesses with high volume, such as retail and restaurants, benefit from weekly checks. If you’re months behind, our guide on how to catch up on bookkeeping explains how to work through the backlog in order.
Should You Reconcile Credit Cards Too?
Yes. Credit card accounts, loan accounts, and merchant processor balances all need the same process, since each one affects your reports. Keep personal spending off business accounts to make this easier, as explained in our guide to separating business and personal finances.
Frequently Asked Questions
What is bank reconciliation? It’s comparing your books to your bank statement to make sure they match.
How often should I reconcile my bank account? At least monthly, and weekly if you have high transaction volume.
What are deposits in transit? Deposits you’ve recorded that haven’t yet appeared on the bank statement.
What causes a reconciliation to be off? Common causes include duplicates, missing fees, transposed numbers, and edited past transactions.
Want Reconciliation Handled for You?
Our monthly bookkeeping services reconcile every account, every month, and our QuickBooks clean up and catch up services fix backlogs. Book a free consultation with our Sanford, FL team or visit our homepage.
