How to reconcile a bank account, step by step

What reconciling is

Reconciling a bank account means proving that your books and your bank agree about how much money was in the account on a given day. You take the ending balance on the bank statement, account for anything the bank has not seen yet, and check that it equals the balance in your books.

It is the single most useful check in bookkeeping. A reconciled bank account catches missed deposits, duplicated bills, payments posted to the wrong account, bank fees nobody entered, and occasionally fraud. If your bank accounts are reconciled every month, most other errors have nowhere to hide.

Before you start

• The bank statement for the month, with its ending date and ending balance.
• Last month's reconciliation, so you know the starting point is right. The statement's opening balance should equal the ending balance you reconciled last month.
• Everything entered for the month: deposits, cheques, card payments, transfers, bank fees and interest.

If the opening balance does not match last month's reconciled balance, stop and find out why first. Usually a transaction in an already-reconciled month was changed or deleted.

The steps

1. Enter the statement's ending date and ending balance in your reconciliation screen.
2. Enter what only the bank knows: service charges, interest earned, and any automatic payments you have not recorded yet.
3. Tick every deposit in your books that appears on the statement. Match by amount and date; a deposit of several cheques shows as one line on the statement.
4. Tick every payment that appears on the statement: cheques by number, card and online payments by amount and date.
5. Look at the difference. When everything on the statement is ticked, the difference between the cleared balance and the statement balance should be zero.
6. Leave the rest unticked. Cheques not yet cashed and deposits made after the statement date stay open; they will clear next month.
7. Finish and keep the report. The reconciliation report lists what cleared and what is outstanding, and it is what your accountant will ask for at year-end.

Reconcile credit card accounts the same way, using the card statement. They are just as likely to hold duplicated or missing charges.

When it won't balance

Work through these in order. Most differences are found in the first three.

• Is the difference an exact amount you recognise? Search your books for that amount. A transaction entered twice, or one that is missing, explains it.
• Is the difference divisible by 9? Then two digits are probably swapped somewhere: 54.00 entered as 45.00 is a difference of 9.00.
• Is it twice an amount? A deposit entered as a payment, or the reverse, produces a difference of double the amount.
• Was something dated in the wrong month? A transaction dated after the statement end will not appear in the list to tick.
• Did last month really balance? If the opening balance is off, the problem is in an earlier month.

Resist the temptation to enter a balancing adjustment to make the difference go away. It hides the mistake instead of fixing it.

Habits that make it easy

• Reconcile within a week of the statement. Small months are quick; three months at once is a project.
• Import the bank's statement file rather than typing transactions. Fewer typos, and the matching does most of the ticking.
• Lock the month afterwards with a closing date, so reconciled transactions cannot be changed by accident. See the monthly closing checklist.