What reconciliation is and why you need to do it monthly
Reconciliation is the process of comparing your bank statement against your own records to make sure they match. You do this monthly because your bank's view of your account and your view of it will almost never be identical on the same day — checks you wrote haven't cleared yet, deposits you recorded haven't posted, and the bank may have charged fees you haven't entered into your books yet.
The goal is to find and explain every difference between what your bank says you have and what you say you have. When those two numbers match, you know your records are accurate and you can trust them for tax purposes, loan applications, and business decisions. If they don't match and you don't find out why, you may overdraw without realizing it, miss fraudulent charges, or discover months later that your profit numbers were wrong.
Most small business owners reconcile monthly because that's when the bank statement arrives and because monthly is frequent enough to catch problems before they compound. Some reconcile weekly if they have high transaction volume or use their account for payroll.
Key Takeaways
- Reconciliation means comparing your bank statement line-by-line against your own records to find and explain every difference.
- Start by listing all outstanding checks and pending deposits, then adjust your bank balance and your book balance to account for them.
- The two adjusted balances should match; if they don't, work backward through recent transactions to find the error.
- Most banks and accounting software can help you match transactions automatically, but you still need to review the results yourself.
- If you find a discrepancy you cannot explain, contact your bank with specific transaction details and dates.
Gather your bank statement and your transaction records
Pull your bank statement for the month — the one your bank mailed or emailed you, or the one you read from your online banking portal. You need the statement that shows the opening balance on the first day of the month and the closing balance on the last day.
Next, gather your own records of what you think happened in that account during the same period. This might be a spreadsheet you maintain, a ledger in your accounting software, or printouts from your bookkeeper. The key is that these records should show every deposit you recorded, every check you wrote, every transfer you made, and every expense you entered — whether or not the bank has processed it yet.
Set these two documents side by side. You are about to find out where they differ and why.
List checks and deposits that haven't cleared yet
Go through your records and identify transactions that you recorded but that do not appear on the bank statement. These are usually checks you wrote that the recipient hasn't deposited yet, or deposits you made near the end of the month that haven't posted.
Write down the check number and amount for each outstanding check. Write down the date and amount for each deposit that hasn't cleared. These are called outstanding items, and they are the main reason your balance and the bank's balance will differ.
For example: you wrote check #1047 for $500 on the 28th, but it doesn't appear on your statement that closes on the 30th. That check is outstanding. You deposited a customer payment of $1,200 on the 29th, but it doesn't show up until the statement for next month. That deposit is outstanding.
Adjust the bank statement balance for outstanding items
Start with the closing balance shown on your bank statement. This is the number the bank says you have at the end of the month.
Add back any deposits you made that haven't cleared yet. Subtract any checks you wrote that haven't cleared yet. The result is what your account balance should really be if you account for things the bank hasn't processed.
Example: Your bank statement shows a closing balance of $8,500. You have two outstanding checks totaling $1,200 and one outstanding deposit of $800. Your adjusted bank balance is $8,500 − $1,200 + $800 = $8,100.
Adjust your own records for bank fees and interest
Now look at your bank statement for any charges or credits you may not have recorded yet. Banks typically charge monthly maintenance fees, per-check fees, overdraft fees, or wire transfer fees. Some accounts earn interest. These items appear on the statement but may not be in your own records yet.
Write down each fee or interest amount. Subtract fees from your book balance and add interest to it. Your book balance is the total you calculated from your own records before you started this reconciliation.
Example: Your book balance is $8,300. The bank statement shows a $10 monthly maintenance fee and $2 in interest. Your adjusted book balance is $8,300 − $10 + $2 = $8,292.
Compare the two adjusted balances
If your adjusted bank balance and your adjusted book balance are now the same, reconciliation is complete. Write down the reconciled balance and the date. You are done.
If they do not match, you have a discrepancy. The difference is usually small — a transposition error (writing 1,250 instead of 1,520), a missing transaction, or a duplicate entry. Start by checking the math on both sides. Then go back through the statement and your records line by line to find the transaction that is missing or wrong.
Common places to look: Did you record a check with the wrong amount? Did you miss a deposit? Did the bank process a transfer you forgot about? Is there a fee you didn't know about? Work backward from the most recent transactions, because those are easiest to remember.
Use accounting software to speed up the process
Most accounting software — QuickBooks, FreshBooks, Wave, Xero — can read your bank transactions automatically and match them against what you recorded. You connect your bank account to the software once, and it pulls in each transaction as it clears.
The software will show you which transactions it has matched and which ones are unmatched. You review the unmatched ones, decide whether they belong in your account, and mark them as matched. The software then calculates the reconciled balance for you.
This is faster than doing it by hand, but you still need to review the results. The software cannot tell you whether a transaction is legitimate or fraudulent — it can only match what the bank processed against what you recorded. If someone stole your debit card and made a purchase, the software will match it perfectly. You have to catch that yourself by reading the transaction details.
What to do if you cannot find the discrepancy
If the two balances still do not match after you have checked the math and reviewed all transactions, contact your bank. Bring the specific transaction details: the date, the amount, the check number or reference number, and whether it is missing from the statement or appears on the statement but not in your records.
The bank can tell you whether a check has cleared, whether a deposit posted, or whether a fee was charged in error. They can also flag fraudulent transactions if someone used your account without permission. Keep a record of who you spoke to, when, and what they said.
If the discrepancy is large or involves multiple transactions, ask your bank to send you a detailed transaction history for the month. This shows every single debit and credit, including the exact time each one posted, and can help you spot what you missed.
Frequently Asked Questions
How long should reconciliation take?
For a small business with 50 to 100 transactions per month, reconciliation usually takes 30 to 60 minutes by hand. With accounting software that auto-matches transactions, it can take 10 to 15 minutes. The time depends on how many outstanding items you have and whether you find discrepancies.
What if a check I wrote months ago still hasn't cleared?
If a check is more than 90 days old and still hasn't cleared, contact the recipient to confirm they received it. If they say they did not, you may need to stop payment on the check and issue a new one. If they say they have it but haven't deposited it, ask them to do so. Once you know the check will not clear, you can remove it from your outstanding items list.
Can I reconcile on a different day than the bank statement closing date?
You can, but it is more work. Reconciliation is easiest when you use the bank statement closing date because that is the date the bank used to calculate the balance you are comparing against. If you reconcile on a different date, you have to account for all transactions that posted between the statement closing date and your reconciliation date.
What if the bank made an error?
If you find a transaction on the statement that you did not authorize, or if the bank charged you a fee in error, contact them when ready with the transaction details and ask them to reverse it. Banks typically have 60 days to investigate and respond. Keep records of your complaint and their response.
Do I need to reconcile if I use accounting software that syncs with my bank?
Yes. Even though the software pulls transactions automatically, you still need to review them and confirm they are correct. The software matches based on amount and date, so it can miss errors or match the wrong transactions if amounts are similar. Monthly review catches those mistakes before they affect your financial records.