How to Do a Bank Reconciliation: 6 Steps with Example

The statement is in, your books say $7,560.00, the bank says $8,420.00, and you have no idea where the $860.00 went. That gap is almost never lost money. Usually it's a deposit that posted a day late, a check nobody has cashed yet or a fee you didn't know about. This guide shows you how to do a bank reconciliation in six plain steps, then works through that exact $860.00 gap line by line until the difference is $0.00. The method is the same in accounting software, a spreadsheet or on paper.

Key takeaways

• A bank reconciliation proves the cash in your books matches the cash in the bank, once timing differences are explained.
• Timing items (deposits in transit, outstanding checks) adjust the bank side. Bank-only items (fees, interest, returned checks) adjust the book side.
• Always start by checking that your opening balance matches last month's reconciled ending balance.
• Never force it to balance. A leftover difference means something still needs to be found.

What you need before you start

A bank reconciliation compares two records of the same money: the bank statement and your general ledger cash account (your "books"). Gather these first:

• The bank statement for the month, with its ending balance
• Your cash account register or general ledger for the same dates
• Last month's finished reconciliation, so you know which checks and deposits were still outstanding
• A calculator, spreadsheet or reconciliation tool

Most people reconcile monthly, right after the statement closes. Doing it every month keeps the list of items to check short, and catches errors and fraud while they are still easy to fix.

How to do a bank reconciliation: step by step

Step 1: Confirm your starting point

Before matching anything, make sure this month starts where last month ended. Your opening book balance should equal last month's reconciled ending balance. If it does not, something from a prior month was changed or deleted. Fix that first, because every step after this depends on it.

Then write down the two numbers you are about to reconcile:

• The ending balance on the bank statement
• The ending balance in your books for the same date

Step 2: Match deposits

Go through every deposit in your books and find it on the bank statement. Check it off on both sides when the amount matches.

Watch for one deposit on the bank statement that covers several receipts in your books. For example, three customer checks of $200, $350 and $450 might show up at the bank as a single $1,000 deposit. They still match. You just have to group them.

Step 3: Match checks and withdrawals

Do the same for money going out: checks, card payments, transfers and automatic payments. Matching by check number, amount and date is the fastest way through a long list.

When you finish Steps 2 and 3, you will have three groups left over:

1. Items in your books that are not yet on the bank statement
2. Items on the bank statement that are not yet in your books
3. Items that look like they should match but have different amounts (possible errors)

Step 4: Adjust the bank balance for timing items

Items in your books that have not reached the bank yet are timing differences. They are not mistakes. The bank simply has not processed them.

• Deposits in transit: money you recorded and deposited, but the bank had not posted by the statement date. Add these to the bank balance.
• Outstanding checks: checks you wrote and recorded, but the payee has not cashed yet. Subtract these from the bank balance.

The result is your adjusted bank balance.

Step 5: Adjust the book balance for bank-only items

Now look at items on the bank statement that are missing from your books. Common ones:

• Monthly service charges and bank fees (subtract)
• Interest earned (add)
• Returned or bounced customer checks, also called NSF checks (subtract)
• Automatic payments you forgot to record (subtract)

Record each one in your books with a journal entry. The result is your adjusted book balance.

If you found a true error in Step 3, such as a check recorded as $520 that cleared for $250, correct it in your books here too.

Step 6: Confirm the difference is $0.00 and save your report

Compare the adjusted bank balance to the adjusted book balance. When they match, you are reconciled. Save or print the reconciliation report, along with the list of outstanding items. Next month, you will start by checking those items first.

Bank reconciliation example: a small bakery in March

Here is a worked bank reconciliation example for a fictional business, Maple Street Bakery, for the month ending March 31.

What the bakery found after matching:

• Bank statement ending balance: $8,420.00
• Book ending balance: $7,560.00
• A deposit of $1,250.00 was recorded March 30 but posted at the bank April 1 (deposit in transit)
• Check #1042 to the flour supplier for $1,385.00 and check #1045 for rent of $750.00 had not cleared (outstanding checks, $2,135.00 total)
• The bank charged a $25.00 monthly service fee that was not in the books

The reconciliation:

The bakery records one journal entry for the fee (debit Bank Fees Expense $25.00, credit Cash $25.00), and March is reconciled. The two outstanding checks and the deposit in transit carry over to April's list.

How to fill out a bank reconciliation statement

Here is the bakery's March example written up as a statement, in the order you fill it in:

1. Write the statement date and the two ending balances: bank $8,420.00 and books $7,560.00.
2. On the bank side, add deposits in transit ($1,250.00) and subtract outstanding checks ($2,135.00). The adjusted bank balance is $7,535.00.
3. On the book side, subtract bank-only items not yet recorded (the $25.00 service fee). The adjusted book balance is $7,535.00.
4. Confirm the difference is $0.00. If it is not, find the leftover item before you sign the statement.
5. Record the book-side journal entry, then save the statement with the outstanding items that carry to next month.

When the only leftover items are timing differences and a bank fee, that is the whole statement. If matching hundreds of lines is the slow part, see how the bank reconciliation app works.

By hand, this is manageable with a few dozen transactions. With hundreds, the matching in Steps 2 and 3 is where the hours go. Two tools can take that work off your plate:

• Lots of transactions? ReconMatch imports your bank statement and your books as CSV files, matches them by amount, date and check number, and lists only what is left for you to review. See how ReconMatch works.
• Want a reviewer-ready report every month? The Bank Reconciliation Workbook does the math in these same tables, carries outstanding checks forward to next month and prints a one-page reconciliation to sign.

Common reasons a bank reconciliation won't balance

If your difference is not $0.00, check these first.

• Wrong opening balance. A change to an already reconciled month throws off every month after it.
• Transposed digits. If the difference divides evenly by 9, look for a number like $540 entered as $450.
• Duplicates. The same transaction imported or entered twice, often from a bank feed.
• Missed transfers. Money moved between your own accounts recorded on only one side.
• Wrong sign. A deposit entered as a withdrawal doubles the difference. If the difference is exactly twice one transaction, start there.
• Items from the wrong period. A transaction dated in the books for a different month than the statement covers.

Monthly bank reconciliation checklist

• Opening book balance equals last month's reconciled ending balance
• Bank statement ending balance and book ending balance written down
• Every deposit matched or listed as a deposit in transit
• Every check and withdrawal matched or listed as outstanding
• Last month's outstanding items checked: cleared or still open
• Bank fees, interest and returned checks recorded in the books
• Errors corrected with a journal entry
• Adjusted bank balance equals adjusted book balance ($0.00 difference)
• Report saved with the date and who prepared it
• Checks outstanding more than 90 days followed up

Which tool fits you?

• Choose the Bank Reconciliation Workbook ($12.99) if you reconcile one account with a manageable number of transactions and want a signed record each month. It works in Excel or Google Sheets, follows these same six steps, flags OUT OF BALANCE with tips for finding the difference, and keeps a 12-month summary. It is a strong fit for church, nonprofit and club treasurers who need a reviewer sign-off.
• Choose ReconMatch ($29.99) if the matching is what eats your time. It's a browser app for your device (not made for small mobile screens) that auto-matches hundreds of lines, builds the report and suggests the journal entry for anything your books are missing. Read the bank reconciliation app walkthrough.

Both are one-time purchases with no subscription. You can also browse small business tools, church and nonprofit tools or all our apps. Church treasurers who need the offering count and giving records in the browser can start at the Church Treasurer app.

See ReconMatch in action

Want to go deeper?

If you'd like a full system built around this habit, this book picks up where this guide leaves off:

• Know Your Numbers: The Solopreneur's Monthly Close (opens in a new tab) sets up a simple monthly close that starts with reconciling your bank and card accounts line by line, then uses those numbers to pay yourself, set money aside for taxes and build a cash reserve.

Frequently asked questions

How often should I do a bank reconciliation?

At least once a month, as soon as the statement is available. Businesses with a lot of activity, or anyone worried about fraud, may reconcile weekly.

What is the difference between a deposit in transit and an outstanding check?

Both are timing differences. A deposit in transit is money you recorded that the bank has not posted yet, so you add it to the bank balance. An outstanding check is a payment you recorded that has not cleared yet, so you subtract it from the bank balance.

Why do bank fees go on the book side?

Because the bank already took them out. The bank's balance is correct. Your books are the side that has not recorded the fee yet, so you adjust the books.

What should I do if my bank reconciliation is off by a small amount?

Find it rather than writing it off. Check the opening balance, look for transposed digits (differences divisible by 9) and duplicates. Small differences can hide bigger offsetting errors.

Can I do a bank reconciliation in Excel?

Yes. Put the bank statement and your books side by side, mark matches, then list the timing items and bank-only items in a summary like the tables above. A ready-made workbook or a matching app saves the setup time.

Who should do the bank reconciliation?

Ideally, someone who doesn't also write the checks or make the deposits. In a small business or church, having a second person review and initial the finished report is a simple, strong control.

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Source: Sage: What is bank reconciliation (opens in a new tab)