Bank reconciliation is the process of comparing your accounting records with the bank statement and explaining every difference. It is one of the most important controls in small-business bookkeeping.
Key takeaways
- A bank feed is not the same as a reconciliation.
- Reconciliation helps find missing, duplicated, and incorrectly recorded transactions.
- Every account should have a clear reconciliation period and ending balance.
- Unexplained differences should be investigated before the period is considered complete.
Why bank reconciliation matters
Your accounting system and your bank statement are separate records. They can disagree because of timing, missing transactions, duplicates, fees, errors, transfers, or transactions recorded to the wrong account.
Reconciliation is the control that forces those differences to be explained.
Step 1: Choose the period
For monthly bookkeeping, use the bank statement’s beginning and ending dates. Start with the statement ending balance.
Step 2: Match transactions
Compare deposits and withdrawals in the books with the statement. Confirm that the amounts and dates make sense.
Step 3: Identify normal timing differences
Some items may be recorded in the books but not yet cleared by the bank. Examples can include outstanding checks or deposits in transit.
Step 4: Investigate unexplained differences
Look for:
- Duplicate transactions
- Missing bank fees
- Unrecorded interest
- Transactions posted to the wrong account
- Incorrect opening balances
- Transfers recorded only on one side
Step 5: Confirm the reconciliation difference is zero
A completed reconciliation should explain the difference between the bank statement and the accounting records for the period.
Common reconciliation mistakes
- Forcing the reconciliation with a plug entry
- Deleting old transactions just to make the balance match
- Reconciling to the online current balance instead of the statement
- Ignoring old outstanding transactions
- Allowing duplicate bank-feed imports
Why reconciliation helps at tax time
The IRS says good records help prepare financial statements and tax returns and support the amounts reported. Reconciled books are a stronger foundation than a ledger that has never been compared with source statements. See the IRS recordkeeping explanation.
Frequently asked questions
How often should I reconcile?
Monthly is a common minimum rhythm for many small businesses, though businesses with higher volume may review accounts more frequently.
Can software reconcile automatically?
Software can match many items and reduce manual work, but unresolved differences still need investigation.
What if my reconciliation is off by a small amount?
A small unexplained difference is still unexplained. Investigate rather than forcing the reconciliation.
Next step: If reconciling accounts is one of the tasks you want off your plate, review Benny AI.