How to Reconcile a Bank Statement, Step by Step

A bank reconciliation proves that the cash balance in your books is right. You compare what the bank says you have with what your ledger says you have, explain every difference, and end with two adjusted balances that match to the cent. Done every month, it catches missed transactions, bank errors and fraud while they’re still easy to fix.

What you need

• The bank statement for the month, with its ending balance.
• Your cash ledger for the same account and period: the register in QuickBooks, Xero or a spreadsheet.
• Last month’s reconciliation, for the items that were still outstanding at the end of that month.

If the statement is only a PDF, convert it to a spreadsheet with the bank statement to Excel converter so you can sort and tick off lines instead of reading them on screen.

Why the two balances differ

The bank and your books record the same transactions at different times. The usual reasons:

On the bank side	On the book side
Deposits in transit: recorded in your books, not yet on the statement	Bank fees and charges you haven’t recorded yet
Outstanding checks: written and recorded, not yet cashed	Interest earned paid by the bank
Bank errors, rare but real	Returned (NSF) checks from customers
	Your own errors: wrong amounts, duplicates, missed entries

Bank-side items are fixed by waiting: the deposit will appear, the check will clear. Book-side items need a journal entry or a transaction in your accounting software.

The steps

1. Start with the ending balance on the statement.
2. Add deposits in transit. Compare the deposits in your ledger with the statement. Anything recorded near month end that isn’t on the statement yet is in transit.
3. Subtract outstanding checks and payments. Do the same for checks, transfers and card payments recorded in your books that haven’t cleared.
4. Correct bank errors, if any, and contact the bank.
5. The result is the adjusted bank balance.
6. Start again from the ending balance in your books.
7. Add what the bank recorded that you didn’t: interest, incoming transfers, deposits you never entered.
8. Subtract what the bank took that you didn’t record: service fees, merchant fees, returned checks, automatic payments.
9. Fix your own errors: an amount typed wrong, a transaction entered twice.
10. The result is the adjusted book balance. It must equal the adjusted bank balance.
11. Record the book-side adjustments in your accounting software, so next month starts clean.

A worked example

At March 31, the statement shows an ending balance of $12,480.00. The books show $12,960.00.

Bank side

	Amount
Ending balance per statement	12,480.00
Add: deposit in transit, March 31	1,250.00
Less: outstanding check #1043	(640.00)
Less: outstanding check #1045	(315.50)
Adjusted bank balance	12,774.50

Book side

	Amount
Ending balance per books	12,960.00
Add: interest earned	4.50
Less: monthly service fee	(15.00)
Less: customer check returned NSF	(175.00)
Adjusted book balance	12,774.50

The two adjusted balances agree. Three entries go into the books: the interest, the fee, and the returned check (which also puts the $175 back into the customer’s balance in accounts receivable).

The free bank reconciliation tool does the matching for you: load the statement and an export of your ledger, and it pairs transactions by amount, check number and date, then lists what’s only on one side. Those lists are your deposits in transit, outstanding checks, fees and interest. Nothing is ever force-matched, and the result exports to Excel or PDF for your files.

When it doesn’t balance

Look at the size of the difference first. It often tells you what to look for.

• The difference matches one transaction exactly: it’s missing on one side. Search for that amount.
• The difference is twice a transaction: an amount was recorded with the wrong sign, for example a $62.40 refund entered as a charge leaves a $124.80 difference.
• The difference divides evenly by 9: probably a transposition, such as $540 entered as $450 (a $90 difference).
• The difference is a round number: a deposit or a transfer between accounts recorded in the wrong account.
• The opening balance doesn’t match last month’s adjusted balance: a reconciled transaction was edited or deleted after the fact. Fix that before working on this month.

Duplicates are common after a bank feed reconnects or a file is imported twice. The duplicate transaction finder lists repeats within one file or across several exports.

Good habits

• Reconcile every account monthly, including credit cards, loans and payment processor balances, not only checking.
• Reconcile soon after month end, while you still remember what the unusual items were.
• Follow up old outstanding items. A check that hasn’t cleared after 90 days should be investigated; a client may have lost it, or it may need to be voided and reissued.
• Keep the report. Save the reconciliation with the statement each month: it’s the first thing an auditor or a tax preparer asks for.
• Don’t force it. Entering a “reconciliation adjustment” to make the numbers match hides the problem. Find the difference, even if it’s small.

In accounting software

QuickBooks Online, QuickBooks Desktop and Xero all have a reconcile screen that does steps 1 to 10 for you: you enter the statement’s ending balance and date, tick the transactions that appear on the statement, and the software shows the remaining difference. The logic is the same as above, and the habits matter just as much. If the bank feed is missing months, convert the PDF statements with the PDF to QBO converter and import them before reconciling.