Records and cash balances
Bank reconciliation: steps and a worked example
Bank reconciliation compares the bank statement with the cash account in your books, explains differences and identifies corrections. The adjusted balances should agree; do not create an unexplained entry just to make them match.
Use the same account and cutoff date
Gather the bank statement, cash ledger, previous reconciliation and payment evidence. An invoice requests payment; it does not prove that cash reached the bank. For payment processors, check the actual settlement and separately deducted fees.
Match transactions and explain the differences
- Check the opening position. Review unresolved items from the previous reconciliation; confirm the account and currency.
- Match receipts and payments. Compare amount, date, reference and payee. The same amount alone does not identify a transaction.
- List timing items. A correctly recorded deposit may not yet appear on the statement; a recorded payment may not yet have cleared.
- Identify book corrections. Check unrecorded fees, interest, returned payments and errors, retaining evidence for each.
- Calculate both adjusted balances. Record supported book changes and carry timing items forward until they clear. Investigate anything still unexplained.
A worked reconciliation table
This hypothetical month-end example uses US dollars. A $600 deposit is in transit and a $400 payment has not cleared. A $30 bank fee is missing from the books; an actual $150 payment was entered as $100.
| Item | Bank side | Book side |
|---|---|---|
| Closing balance | $4,900 | $5,180 |
| Deposit recorded but not on statement | + $600 | Already recorded |
| Payment recorded but not cleared | − $400 | Already recorded |
| Unrecorded bank fee | Already deducted | − $30 |
| $150 payment recorded as $100 | Correctly deducted | − $50 |
| Adjusted balance | $5,100 | $5,100 |
Bank: $4,900 + $600 − $400 = $5,100. Books: $5,180 − $30 − $50 = $5,100. The two timing items need no second book entry when already correctly recorded.
Correct the records without hiding the cause
The $30 fee reduces the cash account and records the expense. The $50 correction adjusts the original payment and its affected account. Keep the statement and payment evidence together. Investigate a bank error with the bank rather than recording it as an unexplained expense.
Do not change an invoice amount to conceal a bank difference. Partial payments, processor fees and refunds each need their own records. The reconciliation worksheet is a check on those records, not their replacement.
Keep the completed reconciliation
Save the account and period, statement, ledger extract, matched references, outstanding-item list and approved corrections. Monthly statements provide a useful review point; frequent transactions may need more frequent checks. Where practical, ask another person to review the calculation.
Frequently asked questions
Do deposits in transit need another entry?
No, when already correctly recorded. List the timing difference and confirm it appears on a later statement.
What if the adjusted balances still differ?
Check missing and duplicate entries, signs, dates, opening balances and references. Investigate the difference rather than inserting a balancing amount without evidence.
Does an invoice tracker reconcile the bank account?
It helps match customer balances and payments. Bank reconciliation also checks the cash ledger, fees and other receipts and payments against the statement.
Accounting reference
OpenStax: bank reconciliation and associated entries explains timing differences and book-side adjustments. The calculation above is an original example.