Bank Reconciliation

What Is Bank Reconciliation?

Bank reconciliation starts with your bank statement ending balance and your accounting system's cash balance, then systematically identifies and resolves the differences. Common causes of discrepancy include outstanding checks (written but not yet cashed), deposits in transit (made but not yet processed by the bank), bank fees not yet recorded, and interest earned.

For example, your books show $15,000 in cash, but your bank statement shows $17,500. Investigation reveals three outstanding checks totaling $3,000 and a bank service charge of $50 not yet recorded. After adjusting for these items, both records agree at $14,950.

Why It Matters for Your Business

Bank reconciliation is one of the most fundamental internal controls for any business.

• Cash accuracy: Knowing your true cash position prevents bounced checks, overdraft fees, and embarrassing payment failures.
• Fraud detection: Unauthorized withdrawals, fraudulent checks, and suspicious transactions are often caught during reconciliation before significant damage occurs.
• Clean records: Bank reconciliation forces you to record all bank fees, interest, and automatic payments, keeping your books complete and up to date.

Monthly bank reconciliation is the minimum standard. Many businesses that process a high volume of transactions reconcile weekly or even daily. Modern accounting software can automate much of the process by importing bank transactions and matching them to recorded entries.