Last reviewed: July 2026.
A bank reconciliation explains the difference between the bank balance in the accounting records and the balance shown by the bank statement. It identifies timing differences, missing entries and errors before they distort cash reporting.
Regular reconciliation is a core financial control. This guide shows the sequence, journal entries, a worked example and the evidence required for review.
Collect complete records for the period
Obtain the bank statement covering the reconciliation date, the cash-book or general-ledger bank account, prior reconciliation, deposit records, payment listings and evidence for bank fees, interest and direct debits.
Confirm that the statement is complete and comes from an authorised source. For online banking, save a controlled copy or secure reference.
Start with the prior outstanding items
Check whether old deposits in transit and outstanding payments cleared after the previous reconciliation. Items that remain outstanding for an unusual period require investigation.
Do not automatically carry forward stale cheques or deposits. They may represent duplicates, lost payments, posting errors or unrecorded cancellations.
Match deposits and receipts
Trace each cash-book receipt to the bank statement, considering batch deposits and settlement delays. Identify receipts appearing only in the books as deposits in transit.
Receipts appearing on the bank statement but not in the books may include transfers, card settlements, interest or direct customer payments. Record valid items in the ledger.
Match payments and withdrawals
Match cheques, electronic payments, card settlements, bank transfers and cash withdrawals. Payments recorded in the books but not yet presented are outstanding payments.
Statement-only items such as fees, loan payments, direct debits or returned deposits require entries in the cash book after verification.
Correct book errors before completing the statement
Examples include transposed amounts, duplicate postings, receipts entered as payments and payments charged to the wrong bank account. Correct these through authorised journal entries.
Bank errors are not corrected in the company ledger unless the bank confirms the transaction belongs to the company. Report bank errors and track them to resolution.
Prepare the adjusted cash-book balance
Post valid statement-only items and book corrections, then calculate the adjusted ledger balance. This is the cash figure expected in the financial statements.
Keep a journal list with source evidence, account coding, preparer and approver. The reconciliation statement should not become a substitute for recording known transactions.
Prepare the reconciliation statement
Starting from the adjusted cash-book balance, add or subtract genuine timing differences to arrive at the bank-statement balance, or work in the opposite direction. Use consistent signs and clear descriptions.
The direction of additions depends on whether the statement shows positive cash or an overdraft. A standard template reduces sign errors.
Worked bank reconciliation example
Suppose the cash book shows $24,600. The bank statement includes a $300 fee and $900 customer transfer not recorded in the books. After posting these, the adjusted cash book is $25,200.
Outstanding cheques total $4,500 and deposits in transit total $2,000. Starting with the adjusted cash book, subtract $4,500 and add $2,000 to obtain a statement balance of $22,700. The exact presentation can be reversed if the statement is the starting point.
Investigate unusual reconciling items
Large, repeated or old items can indicate error or fraud. Pay attention to round-sum transfers, altered supplier details, duplicate payments, transfers between accounts that appear on only one side and entries posted near period end.
Assign each unresolved item an owner and target date. Escalate material differences and avoid clearing them to miscellaneous accounts without evidence.
Use reconciliation as an internal control
The preparer should not have unrestricted authority to initiate and approve bank payments. An independent reviewer should inspect evidence, challenge old items and sign off the reconciliation.
HMRC guidance describes the cash book as a record of bank receipts and payments and notes that reconciliation proves the accuracy of the bank balance. Government management-accounting guidance also recommends reconciling all bank accounts and independently reviewing the evidence.
Automation and bank feeds
Bank feeds can match large volumes quickly, but rules must be monitored. Duplicate imports, overly broad matching tolerances and automatic posting to suspense can create hidden errors.
Review unmatched items, changes to matching rules, user access and the completeness of imported dates. Reconcile the feed control totals to the bank statement.
Strengthen year-end cut-off and confirmation
At year end, agree the reconciliation date to the reporting date and inspect transactions immediately before and after it. Confirm that transfers between bank accounts are recorded in both accounts in the same period and that restricted cash or overdrafts are classified correctly.
For material balances, auditors may request independent bank confirmations. The reconciliation, confirmation and ledger should agree or contain documented explanations for every difference.
Monthly bank reconciliation checklist
- Use a complete statement and controlled ledger extract.
- Clear prior outstanding items.
- Match all receipts and payments.
- Post fees, interest, direct debits and corrections.
- Separate timing differences from errors.
- Investigate old and unusual items.
- Obtain independent review and sign-off.
- Retain statements, journals and supporting schedules.
The reconciled balance should agree to the general ledger and financial statements. Any difference must remain visible until resolved.
Related accounting guides
Authoritative references
- HM Revenue & Customs: Cash book and bank reconciliation guidance
- GOV.UK: Management accounting good-practice guide
This educational guide explains general accounting principles. Legal, tax and filing requirements vary by jurisdiction and entity type, so confirm the rules that apply to the reporting period.