How to do a bank reconciliation

Why it matters

A reconciliation catches errors, missed payments and fraud early. It is also the base for every other report. If the bank is wrong, the balance sheet is wrong.

Do it often. A weekly rec takes minutes. A rec left for three months takes days.

The steps

1. Get the statement. Use the bank statement for the same dates as the ledger period.
2. Match each line. Tick each statement line against a ledger entry. Match by date, amount and reference.
3. List deposits in transit. Deposits in your ledger that are not yet on the statement.
4. List outstanding payments. Payments in your ledger that have not yet cleared the bank.
5. Enter missing items. Enter bank fees, interest and direct debits that are on the statement but not in your ledger.
6. Work out the adjusted balance. Statement balance, plus deposits in transit, less outstanding payments.
7. Compare with the ledger. The adjusted bank balance must equal the ledger balance after you enter missing items.
8. Investigate differences. Check for a transposed amount, a duplicate entry or a payment in the wrong period.
9. Sign and date it. Have a second person review. Keep the rec with your month-end file.

Worked example

Example Distribution Pty Ltd reconciles its main account at 31 October.

Item	Amount
Bank statement closing balance	A$48,300
Add deposits in transit	A$6,200
Less outstanding payments	-A$3,100
Adjusted bank balance	A$51,400
Ledger balance before adjustments	A$51,425
Less bank fee not yet entered	-A$25
Adjusted ledger balance	A$51,400

Both sides equal A$51,400, so the account is reconciled.

Common mistakes

• Plugging a difference to force a match.
• Leaving old outstanding items for months.
• One person doing entry and reconciliation.
• Reconciling to the wrong period.

Next step

Use the Bank reconciliation generator first. Then see how to close the month in AP.