How to Reconcile a Bank Account: A Bookkeeper's Method

The bank reconciliation is the cheapest audit in the whole ledger. Every other account is tested against evidence you produced yourself. Cash is different: an independent third party sends you a statement every month, free. This page is our working method, in the order we do it.

What does a bank reconciliation actually prove?

It proves that everything the bank did to your money is in the ledger, and everything in the ledger will reach the bank. Once you allow for items still in transit, the adjusted balances must agree to the cent. That agreement is evidence, and it is external evidence.

Be clear about what it does not prove. A payment booked to the wrong expense account still matches its bank line perfectly. The rec proves completeness and existence for cash; classification remains your job, not the bank's.

Start from two balances

Take the closing balance on the bank statement and the closing balance in the ledger cash account, both as at the same date. If the statement period and your accounting month do not line up, reconcile to the statement date and note the gap. Paper or software, the logic is identical.

Adjust the statement balance for ledger items the bank has not seen yet. Adjust the ledger balance for bank items the ledger has missed. The two adjusted figures must meet.

A worked example, start to finish

The ledger shows 12,480.55. The bank statement ends at 11,932.10. Four items explain the difference:

Item	Amount	Treatment
Deposit made on the last day, not yet on the statement	1,725.00	Timing; let it clear
Checks issued but not yet presented	875.00	Timing; let it clear
Bank service charge not in the ledger	27.65	Post to bank charges
Customer paid by direct credit, not yet entered	329.20	Post against the customer

Adjusted bank: 11,932.10 plus the deposit in transit, minus the outstanding checks, equals 12,782.10. Adjusted ledger: 12,480.55 minus the service charge, plus the direct credit, also 12,782.10.

Post the two bank-side items in the period you are reconciling. The charge goes to bank fees, the receipt against the customer account. The two transit items stay exactly as they are.

Which differences are timing, and which are mistakes?

The rule is simple. If the bank knows and the ledger does not, post it in the books: charges, interest, direct debits, returned items, customer electronic payments. If the ledger knows and the bank does not, leave it alone and let it clear. If both know but the amounts disagree, one of you made an error.

Hunt errors in a set order. A difference divisible by nine is usually a transposition. Exactly half the difference points to something posted twice. A difference equal to a known figure suggests one transaction sitting on the wrong side. If the bank itself paid wrongly, report it to the bank; do not adjust your ledger until the bank agrees, then post its correction.

How long can a check stay outstanding?

A check should clear within days. One still outstanding after a month deserves a question: was it received, was it lost, is the payee holding it? In many places a check goes stale after six months, and unclaimed funds can eventually fall to the authorities under unclaimed property rules. Those rules differ by jurisdiction, so check the ones that apply to you rather than assuming.

For the books, a stale check has stopped being a timing difference and become something else. Reverse it against the original expense, or carry it as a payable if your rules require the money to be surrendered eventually. Which treatment applies is a policy question; answer it once, deliberately, not check by check.

Evidence worth keeping beside the rec

Keep three things with each month: the statement PDF, the reconciliation summary showing both balances and every reconciling item, and a dated note of anything you had to chase. If a check was reissued or a small difference written off, keep the approval with it.

Next year, when someone asks why the ledger once showed money the bank never held, that file is the only answer. Store it with the period, not in your inbox.

Put cash first in the close

Reconcile cash at the start of the close, not the end. The statement is an external source that arrives on time, and it is the fastest cut-off test you own. Charges and interest landing near period end tell you what to accrue; deposits in transit just after it confirm your cut-off held.

The same method covers every cash-like account: bank accounts, credit cards, payment processors, petty cash counted against a float. When each one is reconciled and signed off, the rest of the close stands on tested ground.

When does a broken rec stop being bookkeeping?

Some faults are not posting errors at all. In accounting software you may see the reconciliation's starting balance change although nobody un-cleared anything. Cleared items reappear as unreconciled. The rec finishes with a difference that no journal explains, and re-keying changes nothing. Those are symptoms of data damage, and working the ledger harder will not fix them.

Stop rather than push on. Preserve a backup or copy of the file exactly as it stands, and note the last reconciliation you trust. Then hand it to a repair specialist before more transactions land on top; see our QuickBooks data repair service if that is where you have landed. We say this as the team that usually gets called after three workarounds have already failed.