Bank Reconciliation Statements: What They Are and How to Prepare One

A bank reconciliation statement is the working paper that proves your cash ledger and the bank actually agree. It starts from the bank's balance, adjusts for items in transit and unrecorded items, and ends at your book balance. If the two sides meet, the reconciliation is evidence the cash account is complete. If they do not, it tells you where to look.

What does a bank reconciliation statement actually contain?

The statement is a short schedule with two halves. One half starts with the bank balance per the statement and adjusts for things the bank has not yet seen: deposits in transit and outstanding cheques. The other half starts with your ledger balance and adjusts for things you have not yet recorded: bank charges, interest, direct debits, returned items, and customer payments that bounce.

Both halves should arrive at the same adjusted, or "true," cash figure. That figure is the balance you can defend at the month-end close. The statement itself, with the bank statement attached, becomes part of your working papers.

How do you prepare one?

Work through it in a fixed sequence. First, tick every item on the bank statement against the ledger, and vice versa. Everything that matches is done; everything left unticked is your reconciliation population.

Then adjust the bank side for timing. A deposit made on the last day of the month that clears on the first of the next is a deposit in transit. A cheque you have issued and recorded, but which the payee has not yet presented, is outstanding. Neither is an error, and neither needs a journal.

Next, adjust your books for what the bank knows and you did not. Bank fees, interest earned, automatic loan repayments, and NSF charges from customers all belong here. These do need journals, because your ledger is incomplete until they are posted.

Finally, compare the two adjusted balances. If they agree, sign and file the statement. If they do not, the difference is your hunting ground.

What causes the differences that remain?

Most residual differences fall into three buckets. Timing differences resolve themselves next month; check the prior reconciliation's outstanding items to confirm they cleared. Recording errors, such as a transposition in the ledger or a payment posted twice, need correcting journals with clear descriptions. Genuine bank errors are rare, and they need to be raised with the bank, not fixed by adjusting your books to force a match.

Never plug the gap with a suspense entry to make the statement balance. A reconciliation that balances by force proves nothing and hides the very problem it was meant to surface.

Where does this fit in the month-end close?

Bank reconciliation is one of the earliest and most reliable close controls. Cash touches nearly every cycle, so a clean reconciliation is indirect evidence that sales, purchases, and payroll all posted in the right period. It also pins cut-off: a deposit in transit recorded this month belongs in this month, regardless of when the bank shows it.

We recommend reconciling every cash account monthly, including credit cards and petty cash, and attaching the bank statement, the reconciliation, and the supporting journals together. Six months later, when someone asks why cash moved, that bundle answers the question without guesswork.

When should you worry?

A one-off small difference is usually a missed fee or an unticked item. A pattern is not. Repeated unexplained differences, balances that will not reconcile at all, or ledger history that does not match prior reconciliations can point to damaged data rather than bad bookkeeping. In QuickBooks Online, for example, a reconciliation that will not open or a beginning balance that has changed since last month suggests something has altered past reconciled transactions.

At that point, stop posting and preserve the evidence: keep the bank statements, the prior reconciliation reports, and a backup or copy of the file before anyone edits history. Reconciling over the top of the damage locks the error in. That is the point where it stops being bookkeeping, and you should hand it to a specialist in QuickBooks data repair rather than force the account through.