How to Do Bank Reconciliation: A Step-by-Step Guide

A bank reconciliation checks that the cash balance in your books matches the money actually in your bank account, and explains every difference. It is the simplest way to catch errors, missing transactions and fraud early. This guide walks you through it step by step, with a worked example you can copy. It is general information, not accounting advice, so ask an accountant if your situation is complex.

Close-up of a printed paper sheet densely filled with rows of numbers, dates and transaction codes — Reconciliation turns a page of numbers into a clear answer: do your books match the bank?

Key takeaways

Reconciliation compares your bank statement balance with your book balance for the same date and explains every difference.
Differences fall into two groups: timing items the bank has not processed yet, and items missing or wrong in your books.
Adjust the bank side for timing items and the book side for missing items and errors. Both adjusted balances must agree.
Reconcile every account at least monthly, including cards and payment platforms, so problems stay small.

Your bookkeeping software shows one cash balance. Your bank shows another. They are rarely identical on any given day, and that is normal. Payments take time to clear, the bank charges fees you have not recorded, and people make typing mistakes. Reconciliation is the process of explaining the gap so you can trust your numbers.

If you use bookkeeping software with a bank feed, much of this happens through a matching screen. It still helps to understand the logic, because that is what lets you find the problem when the numbers refuse to agree.

Why bank reconciliation matters

It is tempting to skip reconciliation when your software already imports bank transactions. Here is why it is still worth doing:

It catches errors. Duplicated transactions, amounts typed wrongly and payments posted to the wrong account all show up.
It catches missing items. Bank fees, interest, direct debits and customer payments that never made it into your books appear as differences.
It spots fraud and bank errors. Unauthorized payments or bank mistakes are far easier to dispute when you notice them within weeks.
It makes your reports reliable. Profit, cash flow and tax figures are only as good as the cash records behind them.

What you need before you start

The bank statement for the period, with the closing balance on the last day.
Your cash book or the bank account register in your bookkeeping software for the same period.
Last period's reconciliation, so you can see which outstanding items were carried forward.
Receipts, invoices and remittance advice for anything you need to check.

Pro tip

Always reconcile to a statement date, not to "today." A fixed closing date gives you a fixed bank balance to work toward, which makes every difference easier to trace.

Understand the two kinds of differences

Every difference between the bank and your books belongs to one of two groups, and each group is adjusted on a different side.

Adjust the bank side: timing differences

These are items that are correctly recorded in your books but have not yet reached the bank statement:

Deposits in transit. Money you received and recorded, such as a cheque you paid in on the last day, that the bank has not credited yet. Add these to the bank balance.
Outstanding payments. Payments you made and recorded, such as a cheque you sent or a payment scheduled near the statement date, that have not cleared. Subtract these from the bank balance.

Adjust the book side: missing items and errors

These are items the bank has processed but your books do not show, or show wrongly:

Bank fees and charges. Subtract these from the book balance and record them.
Interest earned. Add this to the book balance and record it.
Direct debits, standing orders or automatic payments you have not recorded. Subtract them.
Customer payments received directly into the account that you have not recorded. Add them.
Recording errors, such as a transposed amount. Correct by the difference.

How to reconcile, step by step

Choose the period and date. Pick a statement closing date, usually the last day of the month.
Note both closing balances. Write down the bank statement balance and your book balance at that date.
Tick off matching items. Go through the statement and your records together. Mark every deposit and payment that appears in both with the same amount.
List unticked items in your books. These are usually deposits in transit and outstanding payments. Adjust the bank balance for them.
List unticked items on the statement. These are usually fees, interest, automatic payments or direct receipts. Adjust the book balance for them.
Look for errors. Check amounts that nearly match, duplicates and items posted to the wrong period.
Compare the adjusted balances. The adjusted bank balance and the adjusted book balance should be identical.
Record the book adjustments. Enter the fees, interest, missing payments and corrections in your bookkeeping so the books are right going forward.
Save the reconciliation. Keep a copy with the list of outstanding items to carry into next month.

A bank branch counter with a staff member working behind a glass screen at a service window — If a difference turns out to be the bank's error, raise it with your bank quickly and keep a record.

A worked example

For example, a small design studio reconciles its business current account at 31 March. The bank statement shows a closing balance of $8,420.00. The studio's bookkeeping shows a balance of $7,964.00. The gap is $456.00, and the owner works through the differences.

On the bank side, the owner finds a customer cheque for $1,200.00 paid in on 31 March that the bank has not credited yet, and two supplier payments of $1,050.00 and $600.00 recorded in the books that have not cleared. On the book side, the statement shows a $25.00 monthly account fee and $40.00 of interest that were never recorded. Finally, a supplier payment of $321.00 was typed into the books as $312.00, so the books show $9.00 too much cash.

Bank side	Amount	Book side	Amount
Bank statement balance	$8,420.00	Book balance	$7,964.00
Add: deposit in transit	+$1,200.00	Less: bank fee not recorded	−$25.00
Less: outstanding payment 1	−$1,050.00	Add: interest not recorded	+$40.00
Less: outstanding payment 2	−$600.00	Less: transposition error ($321 recorded as $312)	−$9.00
Adjusted bank balance	$7,970.00	Adjusted book balance	$7,970.00

Both adjusted balances are $7,970.00, so the account is reconciled. The owner then records the fee, the interest and the $9.00 correction in the books. The deposit in transit and the two outstanding payments need no entry, because they are already recorded correctly. They go on a list to check against April's statement.

9 If a difference divides evenly by 9, look for a transposition error, where two digits were swapped, such as 321 entered as 312 A classic bookkeeping rule of thumb

When the numbers will not agree

Sometimes you work through everything and a difference remains. Try these checks in order:

Check the starting point. Was last month's reconciliation actually complete? An old unexplained difference will carry forward forever.
Search for the exact amount. Look for a transaction equal to the difference in either record.
Search for half the amount. If a payment was entered as a receipt, or the other way round, the difference is twice the transaction.
Divide by 9. An even result points to swapped digits.
Look for duplicates. Bank feeds and manual entries sometimes record the same transaction twice.
Check dates. An item posted to the wrong month moves the balance between periods.
Check for edited or deleted items. In software, a reconciled transaction that someone changed later can break a past reconciliation.

Common mistake

Forcing a reconciliation to balance with an unexplained "adjustment" entry. It hides the problem and it grows. If you cannot find a small difference after a reasonable search, note it clearly, ask your accountant and keep investigating next month.

Reconciling with bookkeeping software

Most bookkeeping software imports transactions from your bank and suggests matches. The logic is the same as the manual method, but the work feels different:

Review each suggested match rather than accepting all of them. A suggestion based only on amount can pair the wrong transactions.
Create missing book entries, such as fees and interest, directly from the bank feed line.
Run the software's reconciliation report at month end and confirm the statement balance matches the balance it shows.
Lock or close reconciled periods if your software allows it, so past figures cannot change by accident.

Example

Imagine a café owner who accepts every bank feed suggestion with one click. Two identical card payments to the same supplier in one week are matched to the same invoice, and the second is never recorded. The monthly reconciliation report shows a difference equal to one payment, and a quick search finds the missing entry in minutes rather than at year end.

Your monthly reconciliation checklist

Download statements for every bank, card and payment platform account
Note the statement balance and book balance at the same date
Match every transaction that appears in both records
Adjust the bank side for deposits in transit and outstanding payments
Adjust the book side for fees, interest, missing items and errors
Confirm the adjusted balances agree
Record the book adjustments and save the reconciliation
Carry outstanding items forward and check them next month

Frequently asked questions

How often should I reconcile my bank account?

At least once a month, when the statement closes. Busy businesses with many transactions often reconcile weekly, because smaller batches are faster to match and errors are found sooner.

Do I need to reconcile credit cards and payment apps too?

Yes. Any account that holds or moves business money should be reconciled the same way, including business credit cards, payment processors, marketplaces and petty cash.

What if an outstanding payment never clears?

If a cheque or payment stays outstanding for months, contact the payee. It may have been lost or never cashed. You may need to cancel it and reissue, or reverse it in your books, so ask your accountant how to handle it.

Who should do the reconciliation?

Ideally, someone other than the person who makes payments, or at least have the owner review it. Separating these roles makes errors and fraud harder to hide.

The bottom line

Bank reconciliation is a monthly habit that makes every other number in your business more trustworthy. Compare the bank and book balances at the same date, adjust the bank side for timing items and the book side for missing items and errors, and make sure both adjusted totals agree. Then record the adjustments and carry outstanding items forward.

Accounting practices and software tools vary, so if your accounts involve multiple currencies, loans or unusual transactions, ask a qualified accountant to review your process.