Bank Reconciliations: A Bookkeeper's Working Method

Every month, the bank reconciliation is where the ledger meets the outside world. It is the one control where an independent third party, the bank, has already done the checking for you. Our job is to explain every difference between their statement and our cash book, and to leave evidence that we did.

What are you actually proving?

A reconciliation proves two things at once. First, that every transaction the bank knows about is in the ledger. Second, that every difference between the two balances has a known, dated cause. It does not prove the ledger is correct overall. Rent posted to the wrong expense account will reconcile perfectly. Say this plainly in your working papers so nobody over-trusts the sign-off.

What sequence works best?

Start from last month's reconciled balance, not from the general ledger balance. If last month's reconciliation was forced or left with unexplained items, this month will not close cleanly, and you need to know that before you start matching.

Then work in this order:

1. Match bank statement lines to ledger payments, one to one.
2. Match statement lines to ledger receipts.
3. Check bank charges and interest, which arrive on the statement only, and post them.
4. Review the leftovers on both sides. These are your reconciling items.

Resist the temptation to tick large items first and sweep the rest. Small amounts hide theft and duplicates better than large ones do.

What are legitimate reconciling items?

Only two categories survive scrutiny: timing differences and errors.

Timing differences are items recorded in one period by you and in another by the bank. Outstanding cheques you have issued but the bank has not yet presented. Deposits in transit, where you recorded the receipt but the bank credits it a day or two later. Direct debits taken after month end that you accrued for.

Errors are either yours or the bank's. A transposed figure, a duplicate payment, a supplier who cashed a cheque twice. Each one needs a decision, not just a note: post the correction, or claim it back.

Anything else, a plug, a "suspense" difference, an item ticked because it is close enough, is not a reconciling item. It is an unreconciled balance wearing a disguise.

How do you handle stale items?

An outstanding cheque from three months ago is not a timing difference any more. It is a question. Was it lost, stopped, or never sent? Chase it, and if it will never be presented, reverse it and tell the supplier their account is open again.

We suggest a simple rule: any reconciling item older than two statements gets a written explanation in the working paper. If it appears a third time, it gets resolved, not carried.

What evidence should you keep?

Your working paper should show the closing bank balance per the statement, the ledger balance, a dated list of reconciling items, and who prepared and reviewed it. Attach the bank statement. If you reconcile inside accounting software, print or export the reconciliation report; the on-screen ticked list is not evidence once the period is closed.

Sign and date it. An unsigned reconciliation is a to-do list, not a control.

When does a reconciliation problem stop being bookkeeping?

A difference that will not balance after honest effort usually has one of three causes: a transaction posted to the wrong bank account, a damaged or duplicated ledger, or a prior period that was reconciled to a plug. The first is yours to fix. The second and third are not.

If the ledger itself is suspect, stop posting. Take a backup or verified copy, note the date you first saw the problem, and preserve the reconciliation history. Then hand it to a specialist in data repair rather than attempting fixes inside the file. For QuickBooks Online specifically, our QuickBooks data repair service handles damaged reconciliation histories and mismatched opening balances; forcing the account to balance yourself can destroy the audit trail you will need.

The habit that makes it easy

Done monthly, in sequence, with evidence, a bank reconciliation takes minutes. Done quarterly with a backlog, it becomes archaeology. Close the month, reconcile the account, file the paper, and the next one is easy.