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Why and How to Perform a Bank Statement Reconciliation


Many people are used to glancing at their personal bank statements and then tossing them into a drawer. But when you run a company, it's important to take the extra step of performing a bank statement reconciliation each month. It's critical to carefully watch money coming in and out of your account so you can meet your obligations and manage your cash flow.

A bank statement reconciliation is the process of matching the balance reported by the bank at the end of period with the one in your ledger. On rare occasions they might be exactly the same. However, most of the time there are transactions in progress that don't show up in the bank statement. The statement might also record fees and other adjustments to your account that aren't in your books. Finally, people make mistakes and there may be errors made by you or the bank. A bank statement reconciliation is a good time to catch these mistakes before you accidentally bounce a check or are charged too much for something.

The process is straightforward and fairly simple. Some accounting programs allow you to do a bank account reconciliation right in the checkbook portion. Otherwise, use the form on the back of your statement or a spreadsheet. There are also online calculators you can use. The steps are:

  1. Record the bank's ending balance and your book balance in the appropriate sections of the reconciliation.
  2. Check your deposits by comparing the amounts on the statement to what you recorded in your books—any deposits that you made late in the month and are not shown by the bank yet are added to the bank's ending balance. If there is a discrepancy between the amounts shown by you and the bank, this will need to be investigated further.
  3. Next, match all the checks and debit transactions you made during the month against the bank statement—any checks that you've written or transactions you've made that don't show up yet are subtracted from the bank's ending balance. These checks are called outstanding checks. Again, any discrepancies must be investigated. For example, you might have been charged twice or the amount of a check was entered incorrectly by you or by the bank.
  4. Look over the statement for fees, automatic withdrawals, overdraft fees, and other charges you may have incurred. Subtract these amounts from your balance. If you have an interest bearing account add the interest income to your balance.

Once you've finished adding and subtracting these items, the two amounts should be the same. If there is a discrepancy, you will need to go through and try to find it. The first step is to figure out the difference between the two accounts and determine which one is higher. If the bank is higher, there is probably an outstanding check that you overlooked. Sometimes an outstanding check can linger for months so be sure to go back to previous months and make sure everything cleared.

If your balance is higher, then there might be a deposit in transit or fees that you overlooked. A common source of error is transposing numbers, meaning reversing two numbers. For example, $2,985 is recorded as $2,895. Simple errors can also occur, such as entering the wrong number or making mistakes in addition or subtraction.

Doing a bank account reconciliation every month will ensure that mistakes are found as well as make the process less cumbersome than waiting until you encounter a more serious problem.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
Paychex is committed to providing resources to the Spanish-speaking community. To ensure we are providing the most up-to-date and accurate information, some content on this website will be shown in English, and will be provided in Spanish when available.