A bank reconciliation is the check that proves your books match your bank. Every month, you compare the transactions in your accounting records with your bank statement and explain every difference until the two balances agree.
It catches missing deposits, duplicate entries and bank fees nobody recorded, and now and then a charge you never made. If your books haven't been reconciled, the profit and loss statement you're looking at could be wrong.
Why the bank and your books don't match
Your bank balance and your book balance almost never agree on their own, even when nothing is wrong. Timing is the usual reason:
- Outstanding checks: checks you've written and recorded, but the recipient hasn't cashed yet
- Deposits in transit: money you've recorded and deposited that the bank hasn't posted yet
- Bank fees and interest: amounts the bank recorded that you haven't entered in your books yet
- Returned checks: a customer's check that bounced after you recorded the deposit
- Errors: a transaction entered twice, entered for the wrong amount, or never entered at all
Reconciling sorts every difference into one of these groups. Timing differences sort themselves out next month. Missing entries and errors have to be fixed in your books.
How to reconcile your bank account, step by step
1. Gather your records
You need the bank statement for the month and your accounting records for the same period, whether that's QuickBooks, other software or a spreadsheet. Also have last month's reconciliation handy, because any checks that were outstanding then should show up now.
2. Check the starting balance
The beginning balance on the statement should match the ending balance of last month's reconciliation. If it doesn't, a transaction from an earlier month was changed or deleted after it was reconciled. Fix that first, or every month after it will be off.
3. Match the deposits
Go through each deposit on the statement and tick it off against a deposit in your books. Note any deposit in your books that isn't on the statement (a deposit in transit) and any deposit on the statement that isn't in your books (a missing entry).
4. Match the withdrawals
Do the same for checks, card payments, transfers and other withdrawals. Checks you've recorded that aren't on the statement yet are outstanding checks.
5. Record what's missing from your books
Enter anything the bank has that your books don't: bank fees, interest earned, automatic payments you forgot to record and returned checks. These change your book balance.
6. Compare the adjusted balances
- Adjusted bank balance = statement ending balance + deposits in transit − outstanding checks
- Adjusted book balance = your book balance + interest and other bank credits − fees, returned checks and other bank charges
When both numbers are the same, you're reconciled.
7. Save the report
Keep the reconciliation report with the bank statement. Your tax preparer, a lender or an auditor may ask for it, and next month's reconciliation starts from it.
A worked example
Here's a simple month for a small business, with made-up figures.
| Amount | |
|---|---|
| Bank statement ending balance | $12,400 |
| Add: deposit in transit | $1,500 |
| Subtract: outstanding check #1043 | $900 |
| Adjusted bank balance | $13,000 |
| Book balance before reconciling | $13,035 |
| Subtract: monthly bank fee not yet recorded | $35 |
| Adjusted book balance | $13,000 |
Both sides come to $13,000, so the account is reconciled. The only entry needed in the books is the $35 bank fee. The deposit and the check will clear on next month's statement.
How to reconcile in QuickBooks Online
QuickBooks does the arithmetic for you, but you still have to check each line. Intuit moves menus occasionally, so the names on your screen may differ slightly.
- Open Reconcile from the settings menu (the gear icon) or from the Accounting or Transactions menu.
- Choose the bank account.
- Enter the statement ending date and ending balance exactly as they appear on the statement.
- Tick each transaction that appears on the statement. Leave outstanding checks and deposits in transit unticked.
- Add any missing fees or interest with the service charge and interest fields, or as new transactions.
- When the difference shows $0.00, select Finish now.
If the difference isn't zero, don't finish anyway. QuickBooks will post an adjustment for the difference, and whatever caused it stays in your books.
When it won't balance
Work through these in order:
- Starting balance is off: a reconciled transaction from a previous month was edited or deleted. Check the reconciliation history.
- The difference matches one transaction: look for a transaction with exactly that amount. It's either missing from your books or entered twice.
- The difference divides evenly by 9: two digits were probably swapped, such as $540 entered as $450.
- The difference is twice a transaction's amount: a deposit was probably entered as a withdrawal, or the other way round.
- Bank feed duplicates: in QuickBooks, a transaction added by hand and again from the bank feed shows up twice.
How often to reconcile
Reconcile every bank account, credit card and loan at least once a month, as soon as the statement arrives. Businesses with a lot of transactions often do it weekly. The longer you wait, the harder it is to remember what a transaction was for.
If you're months behind, reconciling everything at once is the core of catch-up bookkeeping.
Want reconciliations off your plate?
Monthly reconciliation of every bank and card account is part of my bookkeeping services. I've been doing this work for 38 years, and I work with small businesses across Texas and the US online. If you're weighing whether to hand it off, here's when outsourcing your bookkeeping makes sense, or book a short intro call.