Bank reconciliation: step-by-step process and common errors

What bank reconciliation proves

Bank reconciliation compares the cash balance in the accounting ledger with an independent bank statement. It identifies timing differences, omitted entries and errors, and provides evidence that reported cash is complete and accurate as of the reconciliation date.

A step-by-step reconciliation

1. Confirm the statement period and opening balance.
2. Match deposits and receipts to ledger entries.
3. Match payments, fees, interest and transfers.
4. Identify legitimate timing items such as deposits in transit or unpresented payments.
5. Record missing bank-originated entries in the ledger.
6. Investigate unmatched or duplicated amounts.
7. Confirm the adjusted bank and ledger balances agree.
8. Save the statement, reconciliation and reviewer approval.

Common causes of differences

Differences often come from bank fees not yet recorded, transposed digits, duplicate imports, transfers posted to only one account, incorrect opening balances or transactions dated into the wrong period. Do not force a reconciliation with an unexplained balancing entry.

Foreign-currency accounts

Reconcile the account in its original currency first. Then confirm the functional-currency balance uses the approved closing exchange rate and that exchange differences are recorded separately. Mixing reconciliation differences with FX revaluation obscures both issues.

Make reconciliation reviewable

Use stable transaction identifiers, attach source statements and document old outstanding items. A reviewer should be able to understand each reconciling item without repeating the entire exercise. Accounting automation can perform matching, but people should approve exceptions and stale items. Read the accounting automation overview to connect reconciliation with the wider close.