How To Do a Bank Reconciliation: Steps, Importance & Expert Tips

There are two main components of a bank statement reconciliation. First, ensure that all transactions on your bank statement appear on your check register. Then, see to it that the remaining transactions in your check register are recorded properly, even though they haven’t cleared the bank.

I’ll break those two components into five easy steps, from reconciling the prior period and gathering documents to reconciling balances and creating the reconciliation statement, to illustrate how to do bank reconciliation manually. I’ll also show you how you can do it easily using QuickBooks Online.

Step 1: Reconcile the prior period and gather documents.

Begin reconciliation from either the last time the account was reconciled or the account’s opening, if it has never been reconciled.

Gather these documents:

• Bank statement
• Check register
• Previous reconciliation statement

For example, here is a bank statement from a fictitious institution, First Capital Bank.

		CHECKING ACCOUNT STATEMENT PAUL’S PLUMBING355 Lexington Ave., 18th FloorNew York, NY 10017
228 Park Ave S # 20702New York, NY 10003-15021-800-555-5555PO BOX 4000		Statement Period: June 1, 2022 to June 30, 2022
Date	Description	Ref.	Withdrawals	Deposits	Balance
06-01-2022	Bank statement beginning bal.				10,000
06-03-2022	Local Phone Company - Visa	9655	250		9,750
06-08-2022	Check No. 100		1,000		8,750
06-09-2022	Check No. 101		350		8,400
06-15-2022	Cash Deposit	2297		5,400	13,800
06-17-2022	Check No. 103		2,100		11,700
06-18-2022	ATM Withdrawal	1112	3,000		8,700
06-20-2022	Cash Deposit	2298		1,500	10,200
06-24-2022	Check No. 105		800		9,400
06-28-2022	NYC Electric - Visa	8655	120		9,280
06-29-2022	Kristen Berman - Payment	3332		700	9,980
06-30-2022	Bank service charges		10		9,970
BANK STATEMENT ENDING BALANCE					9,970

Below is the check register of First Capital Bank’s checking account in the books of Paul’s Plumbing:

At first glance, the June ending bank statement balance ($9,970) and the check register balance ($11,800) do not match. Because book and bank records capture transactions at different times, you need to perform a bank reconciliation to account for unrecorded items in both sets of records.

Before starting the June reconciliation, review the May reconciliation shown below. Notice that check No. 100 for $1,000 was listed as a reconciling item. If it does not clear in June, it will remain a reconciling item in the June reconciliation. This step shows why reviewing the prior month’s reconciliation is essential.

Step 2: Trace deposits to the register.

Deposits must appear in both the bank statement and the check register. Any deposit that appears in only one record becomes a reconciling item. Follow these guidelines to analyze deposits:

1. Deposits in the register but not on the bank statement: These are often timing differences if deposited at the end of the month. If not, investigate for possible errors by the bank or in the check register.
2. Deposits on the bank statement but not in the register: These are usually omissions from the check register. Verify the bank deposits are valid, then add them to the register.

Let’s use the sample information below:

		CHECKING ACCOUNT STATEMENT PAUL’S PLUMBING355 Lexington Ave., 18th FloorNew York, NY 10017
228 Park Ave S # 20702New York, NY 10003-15021-800-555-5555PO BOX 4000		Statement Period: June 1, 2022 to June 30, 2022
Date	Description	Ref.	Withdrawals	Deposits	Balance
06-01-2022	Bank statement beginning bal.				10,000
06-03-2022	Local Phone Company - Visa	9655	250		9,750
06-08-2022	Check No. 100		1,000		8,750
06-09-2022	Check No. 101		350		8,400
06-15-2022	Cash Deposit	2297		5,400	13,800
06-17-2022	Check No. 103		2,100		11,700
06-18-2022	ATM Withdrawal	1112	3,000		8,700
06-20-2022	Cash Deposit	2298		1,500	10,200
06-24-2022	Check No. 105		800		9,400
06-28-2022	NYC Electric - Visa	8655	120		9,280
06-29-2022	Deposit by Kristen Berman	3332		700	9,980
06-30-2022	Bank service charges		10		9,970
BANK STATEMENT ENDING BALANCE					9,970

Pay attention to the items highlighted in green. Start reconciliation by matching bank statement line items with the check register.

For example, on June 15, the bank statement shows a $5,400 cash deposit with reference number 2297. The check register (see table below) records the same deposit on June 14. Apply the same process for the $1,500 cash deposit and the $700 deposit from Kristen Berman.

The $1,500 cash deposit with reference number 2298 appears in the check register. However, two discrepancies must be addressed:

1. A $700 deposit from Kristen Berman appears in the bank statement but not in the check register.
2. A $5,220 cash deposit with reference number 2299 appears in the check register but not in the bank statement.

Make these adjustments:

• Deposit by Kristen Berman not recorded in the books: Because the deposit appears in the bank statement, no change is needed to the bank balance. After verifying the deposit is correct, add the $700 to the check register.
• Cash deposit by Paul’s Plumbing not reported in the bank statement: Because the $5,220 deposit appears in the check register but not the bank statement, list it as a reconciling item. This type of reconciling item is called a deposit in transit, meaning the bank has not yet recorded it.

Regular bank reconciliations are a crucial element of cash management and are generally a duty of the bookkeeper. For more information, see our resources:

• Cash Flow Management Tips for Small Businesses
• What Is Bookkeeping and What Does a Bookkeeper Do?

Step 3: Trace withdrawals to the register.

Apply the same concept used in Step 2. Match withdrawals between the bank statement and the check register.

• If a withdrawal shows up on the bank statement but not in the check register, it’s either a book or bank error that needs to be investigated.
• If it’s in the check register but not on the bank statement, it becomes a reconciling item.

The checks shown in the bank statement below are vendor checks issued by Paul’s Plumbing. When the vendors deposited them, the bank recorded deductions in the beginning balance.

		CHECKING ACCOUNT STATEMENT PAUL’S PLUMBING355 Lexington Ave., 18th FloorNew York, NY 10017
228 Park Ave S # 20702New York, NY 10003-15021-800-555-5555PO BOX 4000		Statement Period: June 1, 2022 to June 30, 2022
Date	Description	Ref.	Withdrawals	Deposits	Balance
06-01-2022	Bank statement beginning bal.				10,000
06-03-2022	Local Phone Company - Visa	9655	250		9,750
06-08-2022	Check No. 100		1,000		8,750
06-09-2022	Check No. 101		350		8,400
06-15-2022	Cash Deposit	2297		5,400	13,800
06-17-2022	Check No. 103		2,100		11,700
06-18-2022	ATM Withdrawal	1112	3,000		8,700
06-20-2022	Cash Deposit	2298		1,500	10,200
06-24-2022	Check No. 105		800		9,400
06-28-2022	NYC Electric - Visa	8655	120		9,280
06-29-2022	Kristen Berman - Payment	3332		700	9,980
06-30-2022	Bank service charges		10		9,970
BANK STATEMENT ENDING BALANCE					9,970

Match checks in the check register and the bank statement

Match the checks in the check register with those listed on the bank statement. Refer to the cells highlighted in green.

The bank statement above shows check numbers 100, 101, 103, and 105. Notice that check numbers 102 and 104 are missing from the sequence. You also need to verify if Paul’s Plumbing issued any checks beyond check number 105 by reviewing the check register.

The check register shows that Paul’s Plumbing issued seven checks to vendors: 101, 102, 103, 104, 105, 106, and 107.

• Only check numbers 101, 103, and 105 appear in both the check register and the bank statement, so mark them as cleared.
• Check numbers 102, 104, 106, and 107 do not appear in the bank statement, meaning they have not cleared yet.
• Check 100 appears in the bank statement but not in the check register. This check was a reconciling item in May. Now that it has cleared, exclude it from the June reconciliation report.

Direct debits and bank service charges

In addition to outstanding checks, the bank statement shows direct debits and service charges. Refer to the cells highlighted in orange.

• Direct debits via Visa: These include payments for Paul’s Plumbing’s telephone bill (Local Phone Company) and electric bill (NYC Electric). Because both transactions appear in the bank statement and check register, mark them as cleared.
• Bank service charges: The bank statement shows a $10 service fee that does not appear in the check register. Because the charge was omitted from the books, add it to the check register.

How to treat these items in reconciliation:

• Outstanding checks are checks that appear in the check register but not the bank statement. Deduct them from the bank statement balance. In this case, they’re check numbers 102, 104, 106, and 107.
• Bank service charges are minimal fees billed by the bank. Deduct these from the check register balance.

Step 4: Enter missing transactions into the register.

When reconciling, remember that adjustments for missing transactions apply only to items in the bank statement that do not appear in the check register. Do not record journal entries for deposits in transit or outstanding checks.

Common book errors found during reconciliation

Correct the following errors in the accounting records before completing the reconciliation:

• Customer payments made directly to the bank
• Collection of customer notes made through the bank
• Interest earned in the bank account
• Bank service charges
• NSF (nonsufficient funds) checksAn NSF check is a customer payment that bounced because there were insufficient funds in the customer's account. Allow a few days for deposited checks to clear before spending the money. Otherwise, a bad check could cause your own check to bounce. deposited

In the example, only two book adjustments are required:

• Add the $700 deposit from Kristen Berman to the check register.
• Record the $10 bank service charge in the check register.

Step 5: Reconcile balances and create the reconciliation statement.

A bank reconciliation statement is a schedule that explains the differences between the bank statement balance and the checking account balance.

You’ll have to choose a format.

• Adjusted balances format: Adjust both the bank and book balances until they match. This is the most common method.
• Bank-to-book format: Adjust only the bank statement balance to arrive at the check register balance. While simpler, this format does not demonstrate equality between bank and book balances.

For this example, I’ll use the adjusted balances format.

After reconciling the bank accounts, the true cash balance available to spend is $12,490.

Reconciling bank accounts in QuickBooks Online

Bank reconciliation in QuickBooks Online follows a similar process. However, it will be a little bit easier since the tool will automatically pull up your check register. Knowing how to reconcile bank statements in QuickBooks Online will make the reconciliation process easier and stress-free.

For more information, read our guide on

how to process bank reconciliations in QuickBooks Online

.

As an example, let’s reconcile accounts using the data from First Capital Bank in QuickBooks Online.

Step 1: Enter bank balance, charges, and interest.

Before you start reconciling in QuickBooks, you need to fill out several fields, as shown in the image below.

Entering data needed before reconciliation

• Step 1.1: Choose the account to reconcile. In this example, we use First Capital Bank. For your business, select your checking account.
• Step 1.2: Enter the ending balance from the bank statement. The ending balance in the example above is $9,970.
• Step 1.3: Enter the bank service charges and interest earned. In Paul’s Plumbing’s books, record the $10 fee under the Bank Service Charges account. You may use a different expense account title if appropriate. QuickBooks Online lets you enter bank statement charges at this stage, which eliminates the need to adjust for them later in Step 4.

In this case, no interest was earned, so we skipped that entry. If your bank statement shows interest revenue, record the amount as interest income. Click Start Reconciling when you’re done.

Step 2: Match transactions with the bank statement.

If a transaction appears both in QuickBooks Online and on the bank statement, tick the entry to mark it as cleared. QuickBooks Online will automatically update the cleared balance.

Reconciling transactions

Leave any transaction unticked if it appears only in the QuickBooks Online check register and not on the bank statement. These unticked items remain reconciling items.

Step 3: Record book reconciling items.

In Step 2, you ticked all transactions that appear both on the bank statement and in QuickBooks Online’s check register. However, a $700 difference remains. Reviewing the bank statement shows that Kristen Berman paid $700 directly through the bank. You must record this transaction before completing the reconciliation.

Click Save for later at the top of the reconciliation screen to safely exit without losing progress. After recording the $700 payment from Kristen Berman in the check register, return to the reconciliation screen and tick the payment to clear it.

Reconciling a missing difference

Fill in the details, and don’t forget to select the appropriate bank account where the customer deposited it. In our example, Kristen deposited it into First Capital Bank, so we should select First Capital Bank – Checking Account. Hit the green Save and close button once you’re done.

Receiving payment made directly to the bank by the customer

Step 4: Complete reconciliation.

Navigate to Accounting in the left menu bar and click Reconcile to open the reconciliation screen. Select the account you want to reconcile, then click Resume reconciling.

Resuming reconciliation

On the reconciliation screen, locate the adjustment you made and tick it. The difference should now be $0, and the cleared balance should match the statement ending balance.

Completed bank reconciliation process in QuickBooks Online

Click the green Finish now button to complete the bank reconciliation. This notification will appear: “You reconciled this account.” Click Done, and you’ll arrive back at the bank register.

Step 5 (Optional): Generate a bank reconciliation report.

Navigate to Reports in the left side menu. Use the search bar and search for Reconciliation Reports.

Searching for reconciliation reports

Generating a bank reconciliation statement

QuickBooks Online will bring you to the History by account screen. Ensure you choose the checking account you want to see and set the report period. Click View Report to generate the bank reconciliation statement.

Bank reconciliation statement

QuickBooks Online reconciled the bank statement items to arrive at the bank statement ending balance. If you add all uncleared transactions to the statement ending balance, you’ll arrive at the register balance or the adjusted cash balance.

The importance of reconciling a bank statement

• Ensures the availability of cash: Timely bank reconciliations help your business know the amount of cash in the bank. It helps reduce the occurrence of bounced checks and failed payments due to insufficient funds.
• Catches fraud and manipulations: If one of your employees withdraws money from your bank account or a supplier forges a check you issued, you will certainly see it in the bank statement. In large businesses, accountants and internal auditors sometimes use the proof of cash, or the two-date bank reconciliation. It not only reconciles the ending balances of the checking account but also the current period receipts and disbursements.
• Detects errors and fees: If you recorded checks in the books by mistake, you can correct them by looking at the amount in the bank statement. More so, you can look at the actual check that comes with the bank statement. The bank statement will also reveal the fees and penalties that were charged to your account.
• Explains differences in bank statements and check registers: A bank reconciliation shows items that 1) should be recorded in the check register; and 2) are yet to be recorded by the bank. By considering these reconciling items, you can verify that the check register and bank account have the same balance.

Common bank reconciliation errors and how to fix them

“To err is human, to forgive, divine,” wrote Alexander Pope. Nowhere is that truer than in accounting. Few things invite mistakes faster than the most tedious task in accounting: bank reconciliations.

Finishing one flawlessly on the first try belongs less to the world of spreadsheets and more to the realm of miracles. If you finish one bank reconciliation without finding errors, mismatches, and irregularities, treat yourself to some ice cream because such is a rare occurrence.

Here are some of the common bank reconciliation errors that sneak in when you’re tired, distracted, or just trying to survive through another cup of coffee.

Frequently asked questions (FAQs)