Bank Reconciliation: How to Match Your Books to Your Bank

Why reconcile every month

Reconciliation confirms your cash balance is right, which makes every report built on it more reliable.

Your books and your bank rarely match perfectly. Checks you wrote may not have cleared. Deposits may be in transit. A fee may have hit that you never recorded. Without reconciliation, those gaps grow, and decisions based on your cash number become guesses.

It is also your best early warning for fraud, such as an unfamiliar withdrawal.

What you need before you begin

Gather the bank statement for the period, your ledger or software register for the same dates, and last month's reconciliation.

• Bank or card statement ending on the same date as your period
• Your cash account register from your accounting system
• Prior reconciliation to confirm the opening balance matches

If you use accounting software with bank feeds, much of the matching is automatic, but you must still review and confirm.

The steps

Match each bank line to your records, list the unmatched items, adjust your books for real differences, and confirm the adjusted balances agree.

1. Confirm the starting balance equals last month's ending balance.
2. Tick off each transaction that appears in both the bank statement and your records.
3. List items in your books not on the statement: outstanding checks and deposits in transit.
4. List items on the statement not in your books: fees, interest, direct debits, customer payments not yet recorded.
5. Record the missing items in your books.
6. Check that the adjusted bank balance equals the adjusted book balance.

A worked example

A statement balance of $12,400 less $1,500 of outstanding checks plus a $600 deposit in transit gives an adjusted balance of $11,500.

This is an illustrative example. The bank shows $12,400. You wrote two checks totaling $1,500 that have not cleared, and you made a $600 deposit on the last day that is not yet on the statement. Adjusted bank balance: $12,400 - $1,500 + $600 = $11,500.

Your books show $11,950. The statement includes a $450 payment processor fee you have not recorded. After recording the fee, your books show $11,500. The two sides now match.

When the numbers do not match

Check for transposed digits, duplicate entries, missed deposits, wrong dates and entries posted to the wrong account.

If the difference is divisible by nine, suspect a transposed number such as 54 entered as 45. If it equals a single transaction, look for one that was recorded twice or missed. Review the largest items first. If you still cannot find the cause, ask your bookkeeper rather than forcing the balance with a plug entry.

The accounting equation and debits and credits guides can help you trace the error.

Reconcile credit cards and other accounts too

Apply the same process to business credit cards, payment processor balances and loan accounts.

Processor accounts often hold money in transit and charge fees netted from deposits, which is a frequent source of mismatches. Reconcile them monthly alongside your bank account. Also review loan statements to confirm interest and principal are recorded properly.

Reconciled books support funding decisions

Accurate cash records show true revenue and margins, the starting point for deciding whether financing would pay back.

ROI Funder reviews a complete file, which is an application plus 3 months of business bank statements. Knowing your reconciled numbers first means you can compare an offer against real cash flow. We consider 500+ FICO, 6+ months in business and $20,000+ monthly revenue. Read how to close the books to make reconciliation part of a monthly routine.