How to do a bank reconciliation in seven steps
To do a bank reconciliation, compare every line on your bank statement with the cash account in your books for the same period, mark the items that agree, list timing differences and errors, adjust the books for anything the bank recorded that you did not, and confirm both adjusted balances are equal.
Why bank reconciliation still matters
A bank reconciliation proves that the cash balance in your ledger is real. Auditors ask for it, lenders rely on it, and it is the fastest way to catch a duplicate payment, a missed deposit or a fee nobody booked. It is also the step that most often holds up the month end close, because it is still done line by line in a spreadsheet at many companies.
The method below works whether you reconcile one checking account or forty. It assumes you have a bank statement for the month and access to the general ledger cash account. If you want the matching itself done for you, bank reconciliation software automates the matching and leaves you the review.
Gather the statement and the ledger for the same period
Start with two documents that cover exactly the same dates. From the bank, take the statement for the month, ideally as a file rather than a PDF printout, because CSV, OFX, QFX, MT940 or CAMT.053 files keep dates and amounts clean. From your books, export the cash account activity for the same period, including the opening and closing balance.
Check the opening balances before anything else. The opening balance on the bank statement should equal the closing balance of last month's reconciled bank figure, and the ledger opening balance should equal last month's reconciled book figure. If either one is off, an earlier period was changed after it was closed, and you need to find that change first. Reconciling a month on top of a broken starting point only moves the problem forward.
- Bank statement for the full calendar month, with opening and closing balance
- General ledger cash account detail for the same dates
- Last month's reconciliation report with its list of outstanding items
Match deposits and withdrawals line by line
Work through the credits on the statement first. For each deposit, find the receipt in the ledger with the same amount and a date within a few days. Tick both sides. A single deposit sometimes covers several receipts, for example a card processor payout or a bank deposit of five checks, so look for groups that add up to the deposit amount before you give up on a line.
Pay attention to references. A customer name or invoice number in the bank description is stronger evidence than amount alone, especially when two customers pay the same round amount in the same week. If you receive processor payouts, the deposit is net of fees and refunds, so it will never equal a single sale. The payment reconciliation software page explains how those batches are split back into charges, refunds and fees.
Next, take the debits: checks, transfers, card settlements, direct debits and bank charges. Match each one to the payment recorded in the ledger. Checks are the classic source of timing differences, because you record them when you write them and the bank records them when they clear, which can be weeks later.
Bank fees, interest and automatic debits often appear only on the statement. Do not tick them yet. They become book adjustments once the leftovers are sorted. Note any withdrawal you cannot explain at all, because an unknown debit is exactly what a reconciliation exists to catch, whether it is a bank error, a duplicate supplier payment or something worse.
List outstanding items and differences
Whatever is left unticked falls into a short list of categories. Sorting the leftovers this way tells you what to do with each line.
- Deposits in transit: recorded in the books, not yet on the statement. They stay on the list and should clear in the first days of next month.
- Outstanding checks and payments: recorded in the books, not yet cleared by the bank.
- Bank-only items: fees, interest, automatic debits and returned payments the bank recorded and you did not.
- Errors: a transposed amount such as 1,254.00 booked as 1,524.00, a duplicate entry, or a payment posted to the wrong account.
- Unknown items: anything you cannot classify yet. These need a person and a deadline.
Old items deserve attention. A deposit in transit from three months ago is not in transit anymore, it is an error or a lost deposit. Most finance teams flag anything older than 30 days for a closer look.
Write a short note next to every item you leave open: what it is, who is following up and when it should clear. Next month, the first task is to tick off last month's open items against the new statement. Anything that did not clear gets escalated instead of rolled forward again.
Adjust the books and prove the balances agree
Book the bank-only items with journal entries dated in the period: the monthly service fee, the interest earned, the returned customer payment and the direct debit nobody entered. Correct the errors you found in your own records. Each entry should reference the statement line it comes from, so the auditor can follow the trail.
You never change the bank figure. If the bank made a mistake, such as charging a fee twice, you list it as a reconciling item and ask the bank to correct it. The correction appears on next month's statement and clears the item then.
Now compute two adjusted balances. Take the statement closing balance, add deposits in transit, subtract outstanding checks and add or subtract any bank errors. Separately, take the ledger closing balance after your adjusting entries. The two numbers must be identical to the cent.
As an illustration, say the statement closes at $48,200, you have $3,100 in deposits in transit and $5,400 in outstanding checks. The adjusted bank balance is $45,900. If the ledger, after booking a $35 service fee and $12 of interest, also shows $45,900, the account is reconciled. If it shows $45,810, the $90 difference is your next clue. A difference divisible by nine often points to transposed digits, and a difference equal to one transaction usually means it was missed or doubled.
Review, sign off and keep the evidence
A reconciliation is finished when someone other than the preparer reviews it. The reviewer checks that outstanding items are reasonable, that old items have explanations, and that adjusting entries are posted. Then both sign and date the report and file it with the statement.
Keep the report, the statement, the list of outstanding items and the adjusting entries together. Next month starts from this list, and auditors will ask for it. If you close several entities or accounts, a month end close checklist keeps the order of work consistent.
How to do a bank reconciliation faster
The steps never change, but the matching and sorting of leftovers is where the hours go. Automated reconciliation software reads the statement and the ledger export, matches exact pairs, groups one to many deposits, allows a date tolerance for checks and sends the rest to an exceptions queue sorted into unmatched, partial, duplicate, amount difference and date difference.
With Reconciles, every match shows the reason it was made and a confidence score, and nothing posts to your ledger without review. Adjusting entries can go back to your books as a file, for example for QuickBooks or Xero. If your differences keep coming back, our guide to reconciliation discrepancies covers the usual causes.