Bank Reconciliation Step by Step, With Examples
How to reconcile a bank statement to your ledger: the steps, the usual reconciling items, a worked example and how to speed it up with matching.
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A bank reconciliation proves that the cash balance in your books agrees with the bank's records, apart from timing differences you can explain. It is the single most effective control over cash and one of the first things an auditor will ask for.
Why it matters
- It catches errors — a payment keyed twice, a receipt posted to the wrong account.
- It exposes fraud — payments you didn't authorise, altered cheques, skimmed receipts.
- It captures unrecorded items — bank charges, interest, direct debits, customer payments you never allocated.
- It supports your VAT and tax filings, because the books reflect cash that really moved.
The steps
- Fix the cut-off. Reconcile to the statement date, usually month-end.
- Take the ledger balance of the bank account at that date.
- Tick each ledger entry against the statement. Mark matches on both sides.
- List unmatched statement items — these are usually things to add to the books: bank charges, interest, standing orders, direct debits, receipts you haven't recorded.
- List unmatched ledger items — these are timing differences: uncleared cheques issued but not yet presented, and deposits in transit banked but not yet credited.
- Post adjusting journals for the statement-only items.
- Prove the reconciliation: adjusted ledger balance must equal statement balance − uncleared cheques + deposits in transit.
- Review and sign. Someone other than the preparer should review it.
Worked example
| AED | |
|---|---|
| Balance per bank statement | 38,420 |
| Add: deposits in transit | 6,100 |
| Less: uncleared cheques | (2,950) |
| Adjusted bank balance | 41,570 |
| Balance per ledger | 41,615 |
| Less: bank charges not yet recorded | (45) |
| Adjusted ledger balance | 41,570 |
Both sides end at 41,570, so the reconciliation proves.
Common reasons it won't reconcile
- Transposition: 540 keyed as 450 — the difference divides by 9.
- Duplicate entries: the same payment recorded twice. Try the Duplicate Transaction Finder.
- Wrong sign: a receipt entered as a payment shows up as a difference of twice the amount.
- Prior period items still outstanding from last month.
- Batched deposits: the bank shows one lump sum, the ledger several receipts.
Speed it up
Export the statement as CSV and the ledger for the same account, and let a tool match by amount and date. The free Bank Reconciliation Tool pairs lines with the same amount within a date tolerance and lists what's left on each side, then exports a report — your data stays in the browser. If a statement arrives as an odd layout, tidy it first with the Bank Statement Converter.
Make it routine
Monthly reconciliations done in the first week of the following month take under an hour; yearly ones take days. Software that matches bank lines to the ledger as they arrive removes most of the work. Pyalm Books has banking and reconciliation built on the same ledger as your invoices, bills and VAT, and is free during beta. For the wider month-end routine, see the month-end close checklist.
Standards, rates and deadlines change. Confirm the current position with the relevant authority or a qualified adviser before you rely on it.