How to do a bank reconciliation, step by step

What a bank reconciliation is, and why the balances differ

Your books record a payment when you make it. The bank records it when the money actually leaves. Those two moments are often days apart, so on any given date your cash book and your bank statement will usually show different balances.

A bank reconciliation explains that gap, item by item. Each difference falls into one of two groups:

• Timing differences. Something is in your books but has not reached the bank yet. Cheques you have written that the supplier has not banked, transfers still in progress and deposits you made late on the last day are typical. These clear on their own. You do not post anything for them.
• Missing or wrong entries. Something is on the bank statement but not in your books, or was booked at the wrong amount. Bank charges, interest, direct debits and customer transfers nobody recorded are typical. These need a journal entry.

When every difference is explained, the adjusted bank balance and the adjusted book balance are the same number. That is a completed reconciliation.

What you need before you start

Gather these before you match a single line:

1. The bank statement for the period, with its closing balance. Download it as a file if your bank offers CSV or Excel, so you are not retyping figures.
2. Your ledger for that bank account for the same period: every receipt, payment and transfer posted to it.
3. Last period's completed reconciliation, including its list of outstanding items. Many of those will clear this month.
4. Supporting documents within reach: remittance advices, payment run reports and the bank's fee schedule.

Check one thing first. The opening balance on this month's statement should equal the closing balance on last month's. If it does not, last month's reconciliation was not finished, or a statement is missing. Fix that before you go further.

How to reconcile, step by step

1. Tick off last period's outstanding items. Look for each one on this month's statement. Any that cleared, mark as cleared. Any still outstanding carry forward.
2. Match money in. Work through the deposits on the statement and find each one in your ledger. Match on amount first, then date and reference.
3. Match money out. Do the same for payments, transfers and cheques.
4. List what is on the statement but not in your books. Bank charges, interest, card fees, direct debits, standing orders and customer payments you did not know about. Each one needs a journal entry in your books.
5. List what is in your books but not on the statement. These are your outstanding payments and deposits in transit. Do not post anything for them. They should clear next month.
6. Post the missing entries from step 4, dated in the right period.
7. Prepare the reconciliation statement. Start from the bank balance, add deposits in transit, subtract outstanding payments. Separately, start from the book balance and apply the entries from step 4. The two results should match.
8. Review and sign off. Ideally someone other than the person who made the payments reviews the reconciliation and keeps a record of who signed it and when.

A worked example

Say you run a small trading company in Singapore and you are reconciling your SGD operating account at 31 October.

• The bank statement closes at SGD 48,350.
• Your cash book shows SGD 46,513.

Working through the steps, you find:

• Cheque 1042 to a supplier for SGD 3,200 has not been presented.
• A transfer of SGD 1,500 to another supplier was sent on 31 October and has not left the account yet.
• A customer cheque for SGD 2,600 was deposited on 31 October and is not on the statement.
• The bank charged SGD 45 in fees.
• The bank paid SGD 12 in interest.
• A SGD 230 direct debit for a software subscription went out and was never booked.

The book-side items need journal entries:

• Debit bank charges 45, credit bank 45.
• Debit bank 12, credit interest income 12.
• Debit software subscriptions 230, credit bank 230.

After you post them, your cash book shows SGD 46,250. The remaining gap to the statement is the deposit in transit and the two outstanding payments, which you carry forward and expect to clear in November.

Finding the difference when it will not balance

Sometimes you reach the end and there is still a gap. Work through these checks in order:

• Is the difference exactly one item? Search both sides for that amount. A single missed line is the simplest explanation, so rule it out first.
• Is the difference twice an item? Then something was posted with the wrong sign: a receipt booked as a payment, or the other way round.
• Is the difference divisible by 9? That often points to two digits swapped, such as 1,530 typed as 1,350.
• Was something posted twice? Look for two entries with the same amount and reference.
• Was something posted to the wrong bank account? If you have several accounts, check the neighbouring one for the same amount.
• Is an entry in the wrong period? A payment dated 1 November that cleared on 31 October will show up as a difference in both months.
• Did the opening balance change? If someone edited or deleted an entry in a period you had already reconciled, last month's figures no longer hold. This is why closing periods matters.

Do not post a balancing figure to "suspense" or "sundry" to make it tie. That hides the problem and makes next month harder.

Good habits that make it easier

• Reconcile at least monthly. For busy accounts, weekly is easier, because there is less to search through when something is wrong.
• Reconcile every account, including savings accounts, foreign currency accounts, payment platforms and company credit cards.
• Reconcile foreign currency accounts in their own currency. A USD account should agree in USD with the USD statement. Exchange differences are a separate step, covered in multi-currency accounting.
• Chase stale items. A cheque outstanding for several months may have been lost, or the payee may need a reminder. Your local rules may set out how to treat unclaimed amounts, so check them before writing anything off.
• Separate duties where you can. The person who approves payments should not be the only person who reconciles the account.
• Make it part of your close. Reconciling the bank is one of the first tasks on a month-end close checklist, because so much else depends on the cash figure being right.

If you are still reconciling in a spreadsheet by ticking printouts, the work is mostly matching that software can do for you. See moving from spreadsheets to an ERP for what changes when you switch.

Where Nyra fits

In Nyra, each bank account is linked to its own account in the chart of accounts. You import the bank statement as a CSV or Excel file and preview it before anything is saved. Auto-match pairs statement lines with ledger entries of exactly the same amount within a date window you choose, and any match can be undone with one click. Bank charges or interest that appear only on the statement can be posted as a journal from the reconciliation screen. A reconciliation completes only when the difference is zero. If you have to close with a difference, Nyra asks for a reason and keeps it on the record. Posting periods let you close the month once it is reconciled. See it with your own figures by booking a demo, or read more on Nyra's accounting module.