How to Reconcile Bank Accounts and Catch Errors Before They Add Up

Reconciling bank accounts means comparing your company’s recorded bank transactions against the actual statements you receive from your bank. This helps make sure your accounting records match your bank records.

The process helps you identify missing transactions, incorrect amounts, bank fees, and other discrepancies before they affect your financial reports. The Utah Office of the State Auditor’s bank reconciliation guide explains how to compare accounting records with bank statements and investigate differences.

Fields Defined

When you reconcile bank accounts, the following information helps you compare your accounting records with your bank or credit card statement.

• Account: Select the bank or credit card account you want to reconcile.
• Statement Date: The date printed on the bank or credit card statement. This is usually the statement’s ending date, which is not necessarily the last day of the month.
• Last Reconciled: The date the account was last reconciled, if applicable.
• Beginning Balance: The ending balance from your previous statement. If you are reconciling an account for the first time, verify that your opening balance is correct rather than automatically assuming it should be zero.
• Ending Balance: The ending balance shown on your current bank or credit card statement.
• Service Charge, Date, and Account: If the statement includes bank fees or service charges that have not yet been recorded in your books, record the amount, date, and appropriate expense account. An account such as Bank Fees may be appropriate.
• Finance Charge, Date, and Account: For credit card accounts, record any finance charges or interest that have not yet been entered in your accounting records. Include the date and the appropriate expense account, such as Interest Charges.

Bank fees and interest charges should be recorded in your books so your account balance reflects these transactions.

Step-by-Step: How to Reconcile Bank Accounts

1. Gather your bank statement. Have the statement for the period you are reconciling available, along with your accounting records.
2. Verify the beginning balance. Confirm that the beginning balance matches the ending balance from your last completed reconciliation. If this is your first reconciliation, check that the account’s opening balance was entered correctly.
3. Enter the statement ending balance. Use the ending balance printed on your bank or credit card statement, along with the statement date.
4. Compare transactions. Match the deposits, checks, payments, and other transactions in your books against those shown on the statement. Mark transactions that have cleared the account.
5. Record missing fees and interest. Enter any bank service charges, credit card interest, or other transactions shown on the statement but not yet recorded in your books.
6. Review the difference. Compare the adjusted balance in your accounting records with the statement balance. Investigate any remaining difference before completing the reconciliation.

Outstanding checks and deposits in transit can explain why your books and bank statement show different balances. Microsoft’s bank account management and reconciliation documentation provides additional guidance on reconciling account activity.

Tips for Reconciling Bank Accounts

• Reconcile regularly. Review bank and credit card accounts at least monthly, using each statement’s ending date as your cutoff.
• Keep receipts for business purchases. When multiple employees use company credit cards, require them to submit receipts promptly so charges can be identified and recorded accurately.
• Investigate missing transactions. If a debit or credit does not appear in your books, check the transaction details, dates, and supporting documentation before making adjustments.
• Be careful when correcting cleared transactions. Deleting, voiding, or re-entering a previously reconciled transaction can cause discrepancies in later reconciliations. Correct the underlying error without unnecessarily changing prior records.
• Distinguish timing differences from errors. Outstanding checks and deposits in transit may explain why the bank statement and accounting records show different balances. These items should be accounted for rather than automatically treated as mistakes.

For example, if you record a customer payment on the last day of the month but the deposit does not appear on the bank statement until the following month, the difference may simply reflect the timing of the deposit. The IRS discusses how to account for deposits in transit and outstanding checks when reconciling bank statements.

Keeping your transactions organized also makes it easier to track customer payments before they reach your bank account. Aptora’s guide to undeposited funds and how they appear on the balance sheet explains how these payments are recorded before being deposited. Regular bank reconciliation helps maintain accurate financial records, identify discrepancies early, and produce more reliable financial reports. If your balances do not agree after checking the transactions and timing differences, consult your accountant or bookkeeper before making an adjusting entry.