If your bank balance and your accounting software show different numbers, you are not alone. That gap is normal, and closing it is exactly what bank reconciliation is for. Done monthly, it is one of the simplest ways to keep your books accurate and your cash position trustworthy.
What is bank reconciliation?
Bank reconciliation is the process of comparing the transactions in your accounting records (for example, QuickBooks Online or Xero) with the transactions on your bank or credit card statement, and explaining every difference. When the two sides agree, your books are reconciled.
Why it matters for a small business
- It catches errors. Duplicate entries, wrong amounts and missed transactions show up quickly.
- It exposes unauthorized charges. Unfamiliar payments are easier to spot when you review every line.
- It protects your reports. A profit and loss statement built on unreconciled books can mislead you.
- It makes tax time easier. Your CPA starts with clean, verified numbers.
A simple example
Let us follow a made-up business, Maple Street Bakery in Ohio, as it reconciles its checking account for October.
| Item | Amount |
|---|---|
| Bank statement ending balance (Oct 31) | $13,940 |
| Add: deposit in transit (made Oct 30, not yet cleared) | +$400 |
| Less: outstanding checks (two checks not yet cashed) | -$1,650 |
| Adjusted bank balance | $12,690 |
Now the bookkeeping side:
| Item | Amount |
|---|---|
| Balance in accounting software (Oct 31) | $12,720 |
| Less: monthly bank fee not yet recorded | -$30 |
| Adjusted book balance | $12,690 |
Both sides equal $12,690, so the account is reconciled. The $30 fee gets recorded as a bank charge expense. The deposit in transit and the outstanding checks need no entry, because they will clear in November.
Step-by-step process
- Gather your documents. Get the bank statement for the month and open your accounting software to the same account.
- Match the starting balance. The beginning balance should equal the previous month’s reconciled ending balance.
- Compare each transaction. Tick off every item that appears in both places.
- Identify timing differences. Outstanding checks and deposits in transit are normal and will clear later.
- Identify items you must record. Bank fees, interest, automatic payments and errors need a journal entry or correction.
- Make the adjustments. Record what is missing and fix what is wrong.
- Confirm the balances agree. The difference should be exactly $0.00.
- Review and save. Keep the reconciliation report with your records.
Common mistakes to avoid
- Forcing the numbers to match with a plug entry instead of finding the cause
- Skipping credit card, loan and payment-processor accounts such as Stripe or PayPal
- Reconciling only once or twice a year
- Mixing personal and business transactions in the same account
How often should you reconcile?
At minimum, once a month for every bank and credit card account. Businesses with high transaction volume often reconcile weekly. Waiting until tax season usually means more errors and a bigger cleanup.
Final thoughts
Bank reconciliation is not glamorous, but it is the backbone of reliable bookkeeping. If you are behind on reconciliations, FinEdge Partner can catch up your past months and keep them current going forward.
Book a Free Consultation Contact Us
This article is general information and not tax, legal or accounting advice for your specific situation.