How to Reconcile a Bank Statement

Reconciling a bank statement means comparing the bank's record of your account with your own Cash account, line by line, until every difference is explained. This guide shows the matching process step by step with a real month of entries, how each unmatched line becomes a reconciling item, and how to prove that the two sides agree.

What you are comparing

You have two lists of the same money.

• The bank statement is the bank's list: every check it paid, every deposit it received, and anything it did on its own, such as charging a fee or paying interest.
• The Cash account in your books (often kept as a check register) is your list: every check you wrote and every deposit you made.

If both lists started the month at the same balance and contained exactly the same items, they would end at the same balance. They rarely do, for two reasons. Some items are in your books but haven't reached the bank yet. Other items are on the statement but haven't reached your books yet. Reconciling is the job of finding each of those items and putting it on the right side.

The method: tick and match

Bookkeepers often call the core of the job "ticking". You work through the bank statement one line at a time, find the same item in the Cash account, and tick both. When you have finished, anything without a tick is a reconciling item.

1. Match by amount and number, not by date. A check you wrote on the 2nd might clear on the 4th. A deposit you recorded on the 9th might show at the bank on the 10th. Check numbers and exact amounts are the reliable link.
2. Tick each bank line that has a partner in the books. These items have cleared: both sides have recorded them, so they cause no difference.
3. Flag bank lines with no partner. These are things the bank did that you haven't recorded: service charges, interest earned, a bounced customer check, a payment a customer sent straight to the bank. They adjust the book balance.
4. Flag book lines with no partner. These are things you did that the bank hasn't processed yet: a deposit made at the end of the month (a deposit in transit) or a check the payee hasn't cashed (an outstanding check). They adjust the bank balance.
5. Work out both adjusted balances and confirm they are the same number.

The exercises in this lesson follow exactly these steps. For each bank line you choose its matching book entry, or mark it as not in the books. For each book line you mark it as cleared, a deposit in transit or an outstanding check. Then you enter the adjusted cash balance.

Worked example: Juniper Landscaping, November

Juniper Landscaping's Cash account and its bank account both started November at $12,247.04. At the end of the month the statement shows $11,817.17 and the books show $13,249.14. The gap is $1,431.97. Here are the two lists.

The bank statement

The Cash account

Step 1: match the bank lines

Take the statement from the top. Check 2218 for $1,847.57 (b1) matches k1. The $1,959.34 deposit (b2) matches k3, even though the dates differ by a day. Check 2219 (b3) matches k2. Notice the order is different: the books recorded check 2219 before the deposit, but the bank paid it after. That is why you match by number and amount, not by position.

Check 2220 (b4) matches k4, and the $763.93 deposit (b5) matches k5. That leaves two bank lines with no partner:

• b6, interest earned, $29.65. The bank paid it in; the books don't have it. Not in the books: add to the book balance.
• b7, service charge, $37.80. The bank took it out; the books don't have it. Not in the books: deduct from the book balance.

Step 2: mark the book lines

Now look at the Cash account. Five lines (k1 to k5) have ticks, so they have cleared the bank. Two are left:

• k6, check 2221 for $1,920.84, written on November 29. Summit Cleaning hasn't cashed it yet. It is an outstanding check: deduct it from the bank balance.
• k7, the $3,344.66 deposit made on November 30. The bank will record it in the next few days. It is a deposit in transit: add it to the bank balance.

Step 3: the adjusted balances

Both sides reach $13,240.99. That is Juniper Landscaping's true cash balance on November 30, and it is the figure you enter in the exercise.

A month with a bounced check

The second exercise moves to Juniper Landscaping's February. The statement includes a line "NSF check returned: S. Patel" for −$1,070.77. NSF stands for non-sufficient funds. A customer paid with a check, Juniper deposited it and recorded the cash, and then the check bounced. The bank took the money back out.

That line has no partner in the Cash account, so it is a bank-only item. Because the money left the account, it is deducted from the book balance, together with an $11.55 service charge. February also has two outstanding checks ($1,239.79 and $739.70, so $1,979.49 in total) and a $594.56 deposit in transit. The bank side is $12,341.57 + $594.56 − $1,979.49 = $10,956.64. The book side is $12,038.96 − $1,070.77 − $11.55 = $10,956.64.

The third exercise, Copperleaf Studio in June, adds an electronic payment from a customer that went straight to the bank. It is money in that the books haven't recorded, so it is added to the book balance, just like interest.

Common mistakes

These are the mistakes the exercises check for. Each one leaves the two sides disagreeing by a telling amount: usually twice the item you got wrong.

Deducting a deposit in transit from the bank balance

A deposit in transit is already in your books. The bank simply hasn't caught up. To bring the bank figure up to date, you add it. Deducting it instead gives Juniper an adjusted bank balance of $11,817.17 − $3,344.66 − $1,920.84 = $6,551.67, far below the book side's $13,240.99. The gap, $6,689.32, is exactly twice the deposit.

Adding an outstanding check to the bank balance

An outstanding check has already left your books, so your Cash balance is lower. It hasn't left the bank yet, so the bank balance is still too high. Deduct it. Adding it gives $11,817.17 + $3,344.66 + $1,920.84 = $17,082.67 for November, and the gap with the book side is twice the check.

Treating an NSF check as money in

An NSF line looks like a check, and a check from a customer sounds like income. But this one is a reversal: the bank removed money you thought you had. If Juniper added the $1,070.77 to its February book balance, the book side would come to $13,098.18 instead of $10,956.64, a gap of $2,141.54, twice the bounced check. Ask whether the business has more or less cash because of the line. Here it has less.

After the reconciliation

The reconciliation proves the true cash balance, but it doesn't change the books on its own. The bank-only items (interest, service charges, NSF checks, payments collected by the bank) are missing from your records, so each needs a journal entry. The bank reconciliation journal entries page shows how to record each one. Deposits in transit and outstanding checks need no entry: the bank will record them next month, and you should look for them on the next statement.

If you keep the reconciliation in a spreadsheet, bank reconciliation in Excel builds the same two adjusted balances with formulas, and outstanding checks and deposits in transit in Excel shows how to total the unmatched items automatically.

How to check your work

• Every line has a decision. Each bank line is matched or marked as not in the books, and each book line is cleared, in transit or outstanding.
• Each match is one-to-one. A book entry can match only one bank line. If two bank lines point to the same entry, one of them is wrong.
• Both sides agree. If the adjusted bank and book balances differ, halve the difference and look for an item of that size. It probably has the wrong sign.
• The direction makes sense. For every item, ask who has recorded it and who hasn't, and whether it adds money or removes it.