Bank reconciliation explained
Bank reconciliation is proving that your records and the bank's records agree — and explaining, line by line, any difference between them. Done monthly, it's the single best control a small business has against errors and fraud.
Why the two balances differ
Your book balance and your bank balance almost never match on the statement date, and that's normal. The usual reasons:
- Outstanding checks you've written that haven't cleared yet.
- Deposits in transit — money you've recorded that posts a day or two later.
- Bank fees and interest you didn't know the exact amount of until the statement.
- Errors on either side — a transposed number, a double entry, a missed transaction.
The method
- Start from the bank's ending balance.
- Add deposits in transit (recorded by you, not yet by the bank).
- Subtract outstanding checks/payments (recorded by you, not yet cleared).
- The result is your adjusted bank balance.
- Start from your book balance, then add interest and subtract fees/charges the bank applied that you hadn't booked.
- The result is your adjusted book balance.
- The two adjusted balances must be equal. If they are, you're reconciled. If not, there's an error to find.
Finding the difference when it won't tie
- Check whether the gap equals a single transaction — then you've found it.
- A gap divisible by 9 often signals a transposition (e.g., 54 entered as 45).
- Compare lists both directions to find what's on one side but not the other — the compare two lists method does this in a minute.
Scaling past one account
One account in Excel is manageable. Several entities and intercompany flows every month is where a dedicated engine earns its keep — see TrueBalance.