How To Reconcile Bank Statements With Your Books Each Month

The difference is almost always due to timing (outstanding checks or deposits in transit) or overlooked bank fees and interest - true errors like duplicate entries or transposed numbers are rarer. You reconcile by adjusting your book balance for items the bank hasn't cleared yet until it matches the statement’s ending balance.

The two figures to compare when you reconcile bank statements

You are not matching the bank statement line-by-line to your general ledger. Instead, you are comparing two different snapshots: the bank’s ending amount (what the bank says you have as of the statement date) and your book total (what your accounting software says you have as of that same date). These two numbers will rarely be equal at first glance because the bank has no idea about the check you mailed yesterday, and your software has no idea that a customer’s deposit hasn’t cleared yet.

Reconciliation is the act of proving that your adjusted book total equals the bank’s adjusted closing figure. You start with your book amount, then add or subtract timing differences (more on those below), and then compare that adjusted figure to the statement’s ending tally. If they match, you’re done. If they don’t, the difference is either a timing item you missed or a genuine error somewhere in your records. This is why the process is a proof, not a search for a single “correct” number, you’re verifying that two independent systems agree once you account for the lag between them.

The most common timing differences that cause panic

Outstanding checks are the #1 culprit. You wrote a check on the 28th, recorded it in your books the same day, but the payee doesn’t cash it until the 5th of next month. On your statement date, that check is missing from the bank’s tally, so your books look higher than they should. Deposits in transit work in reverse: you deposit a customer’s check on the last day of the month, but the bank doesn’t credit it until the next business day. Your books look lower than the bank’s amount because you’ve already recorded that deposit.

These two items alone explain 90% of monthly discrepancies. They are not errors, they are simply the natural delay between when a transaction occurs in your world and when it clears in the bank’s world. The fix is to add outstanding checks to the bank’s figure (or subtract them from your book total) and to add deposits in transit to your book total (or subtract them from the bank’s figure). Either way, you’re aligning the two sides to the same point in time. If you’re using accounting software, it will do this automatically once you mark the check as “cleared” or “uncleared” during the reconciliation screen. The key is to be honest about which items have actually posted, don’t assume a check cleared just because you wrote it three weeks ago.

When the numbers still don’t match after adjusting for timing

If you’ve accounted for every outstanding check and deposit in transit, and you still see a difference, you now have a true error. The most common are transposed numbers (you typed $1,250 as $1,520), a bank fee you forgot to record (like a monthly service charge or a wire transfer fee), or a duplicate entry (you entered the same vendor invoice twice). Start by looking at the difference itself, if it’s divisible by 9, it’s almost certainly a transposition. If it’s an even number, check for a duplicate payment or a missing fee that rounds to that amount.

Next, pull up your bank statement and your software side by side. Go through every single transaction on the statement and mark it as cleared in your books. Then look for any transaction in your books that is not on the statement, those are your outstanding items. If you’ve done that and the difference persists, look for the exact penny difference. Check your opening amount from last month’s reconciliation, if you started with the wrong number, you’ll carry that error forward. Also verify that you didn’t record a deposit as a check or vice versa; a common mistake is entering a refund as a payment, which throws off the tally by twice the amount. If you’re still stuck after 20 minutes, print a reconciliation report from your software and review it line by line. The error is almost always a single transaction that you can find by matching the difference to a specific dollar amount in your register.

For the broader discipline of keeping your books clean, remember that reconciliation is just one part of solid bookkeeping & recordkeeping (the hub for this topic: Bookkeeping & Recordkeeping: What to Know and How to Handle It). Part of that discipline is knowing what business records should I keep and for how long (a related article: What Business Records Should I Keep And For How Long), your bank statements and reconciliation reports are among those records, so keep them for at least three years. And if you’re constantly chasing errors, revisit your process for separate personal and business finances step by step (a related article: How To Separate Personal And Business Finances Step By Step), because mixing accounts is a leading cause of missed transactions. Finally, if you dread this task, adopt a system for receipt management for small business owners who hate paperwork (a related article: Receipt Management For Small Business Owners Who Hate Paperwork) so you’re not guessing whether a deposit was income or a loan.

Reconciliation is the act of proving that your adjusted book total equals the bank’s adjusted closing figure, verifying that two independent systems agree once you account for the lag between them.

Frequently Asked Questions

How often should I reconcile my bank account?

Reconcile at least once a month, right after your statement closes. Doing it more often, say, weekly, helps you catch errors while they’re fresh, but monthly is the minimum to keep your books reliable for tax time and cash flow planning.

What if my bank statement shows a fee I didn’t record?

Record the fee in your books immediately, then include it in the reconciliation. Bank fees are almost never timing differences, they’re actual charges that hit your account, so they must be entered as expenses (usually to “bank charges” or “service fees”) before your adjusted tally will match.

Can I reconcile a credit card the same way as a bank account?

Yes, but the logic flips. For a credit card, you’re comparing your liability amount (what you owe) to the credit card statement’s figure. Outstanding checks become pending charges, and deposits in transit become payments in transit. The same principle applies: adjust for timing, then hunt for errors. For a deeper dive into the systems and habits that keep this process smooth, explore the broader topic of bookkeeping & recordkeeping in our guide, Bookkeeping & Recordkeeping: What to Know and How to Handle It.