Bank reconciliation: what it is and how to do it, step by step
Bank reconciliation means comparing your own records with your bank statement to check that they match and to explain any difference. It's usually associated with businesses, where it's a routine accounting task, but the method is the same whether you keep the books for a household or a small company: two versions of the same story that should agree.
It matters because your balance isn't much use if you can't trust it. If your records say 1,000 and the bank says something else, any decision based on that number starts from the wrong place.
Why they never match first time
Differences are normal and don't mean you did anything wrong. The most common causes are:
- Timing gaps. You recorded a payment on Monday and the bank took it on Wednesday.
- Fees and interest. The bank applies them without telling you.
- Things you forgot. A card purchase or a small transfer you never recorded.
- Duplicates. The same expense entered twice.
- Wrong amounts. A 45 that becomes a 54.
- Charges you can't identify. These are the most important, because they could be a bank error or misuse of your card.
How to do it, step by step
1. Pick a cut-off date. The easiest is your statement's closing date or the last day of the month.
2. Note both balances. The statement's balance on that date and your records' balance on the same date.
3. Tick off what matches. Go through the statement and tick each transaction that also appears in your records, by amount and approximate date.
4. Look at what's left. What's at the bank but not in your records is usually something forgotten or a fee. What's in your records but not at the bank is usually a timing gap or a duplicate.
5. Correct your records. Add what's missing, and delete or fix what's wrong. Anything that hasn't reached the bank yet stays pending for next time.
6. Check that the difference is zero and close the period. A closed period stays closed: the next reconciliation starts where this one ended.
A full example
Imagine, with made-up numbers, that on 31 March your records say 1,000 and the statement says 1,030. After ticking off the transactions, three items are left unmatched:
| Item | Effect on the difference | What to do |
|---|---|---|
| A 50 payment you recorded, not yet taken by the bank | +50 | Leave it pending |
| A 5 fee you hadn't recorded | −5 | Record it |
| A 15 card purchase you forgot | −15 | Record it |
The sum: 1,000 from your records, plus 50 pending, minus 5 and minus 15, gives 1,030. That matches the bank, and the difference is fully explained.
After recording the fee and the purchase, your records show 980, and that is your real balance: the 50 gap with the bank disappears when the payment goes through.
When you can't find the difference
A few tricks for when something won't add up:
- Look for the exact amount of the difference. It is often one specific transaction.
- Look for half the difference. An expense entered as income throws the total off by twice its amount.
- If the difference divides by 9, you may have swapped two digits: 54 instead of 45 gives a difference of 9.
- Check the opening balance. If the previous reconciliation was wrong, the error has carried over.
If you still can't find a very small difference after looking, you can adjust for it with an explicit entry. Treat that as a last resort. A line that says "adjustment" is better than a number pretending to match.
How often to do it
Once a month, when your statement arrives, is the most practical. The longer you leave it, the harder it is to remember what each charge was.
How to do it with less work
You can do it on paper or in a spreadsheet, and it's useful practice the first time. The tiring part is ticking line by line and checking the sum.
Abacova has its own reconciliation section on the web. You import your bank's file, enter the statement balance and tick off transactions, and the screen shows the difference in green when it reaches zero. You can add what's missing as you go and, if the bank posted a charge after the statement closed, change its date so it moves to the next reconciliation. When you finish, the transactions are locked, and the option to adjust the difference is there as a last resort.
To place this within a wider routine, our guide to personal bookkeeping covers it, and if your problem is a number you can't make sense of, read a balance you cannot explain.
Where to start
Take the latest statement for your main account and do just that account and that month. The first reconciliation is the slowest. After that, each month starts from a balance you already trust.