How to Reconcile a Bank Statement

Bank reconciliation is a crucial accounting process that helps you maintain accurate financial records. It involves comparing your bank statement (provided by your bank) to your internal financial records (typically recorded in your accounting system). 

This process allows you to identify any discrepancies so that you can make any necessary adjustments, ensuring that your records are accurate and up-to-date.

Here are the steps you can take to reconcile your bank statement:

Step 1: Gather Your Documents

Before starting the reconciliation process, gather all necessary documents. This will typically include:

  1. Your bank statement: This is a summary of all transactions that occurred over a specific period of time, usually a month. It includes all deposits, withdrawals, fees, and other transactions that affected your bank account balance during that time.

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    Your internal financial records: This could be in the form of a physical ledger, spreadsheet, or accounting software. You will need a record of every transaction that you believe should have impacted your bank account during the corresponding period.

Step 2: Compare Balances

Start by comparing the ending balance on your bank statement with the current balance in your internal financial records as of the end date on the bank statement. If the two numbers match, that’s a great start, but it doesn’t necessarily mean everything has been recorded correctly. If they don’t match, don’t worry—this is why you’re doing a reconciliation.

Step 3: Match Individual Transactions

Begin matching each transaction on your bank statement with corresponding transactions in your internal records. This includes deposits, checks, withdrawals, debit card transactions, bank fees, and any other entries. 

Check off each transaction in both your bank statement and your records as they are matched.

Step 4: Identify Discrepancies

If you notice any discrepancies—transactions appearing on one record but not the other—it’s essential to investigate and resolve these. Common causes for discrepancies can include:

  1. Outstanding checks or deposits: These are transactions that you’ve recorded but the bank hasn’t yet. For example, if you wrote a check near the end of the month, your recipient might not have deposited it yet, so it wouldn’t appear on your bank statement.

  2. Bank fees or interest: The bank might have charged a fee or credited interest to your account that you weren’t aware of or hadn’t recorded.

  3. Errors: Either you or your bank could have made a mistake. For instance, you might have entered the wrong amount for a transaction, or the bank might have made an error in processing.

Step 5: Make Adjustments

Once you’ve identified any discrepancies, you’ll need to adjust your internal records to match your bank statement. This could mean adding transactions that were missing or correcting errors. 

However, if the discrepancy is due to an error by the bank, you’ll need to contact them to have it corrected.

Step 6: Document Your Reconciliation

It’s important to document your bank reconciliation process, noting any adjustments that were made. This record will be important for future reconciliations and might be necessary for audits or tax purposes. 

Many businesses will create a bank reconciliation statement to clearly show that their internal records align with their bank statements.

Step 7: Regularly Reconcile

Make it a habit to reconcile your bank statement regularly, usually every month. Regular bank reconciliations help you catch and correct errors promptly, monitor for fraudulent activity, and maintain accurate financial records.

With these steps, you can effectively reconcile your bank statement, keeping your financial records accurate and up-to-date. Remember that the goal of reconciliation is not just to match your balances, but to verify that every transaction has been recorded correctly in both your bank’s records and your own.