How to Reconcile an Account Step by Step

Account reconciliation is a fundamental financial practice that involves comparing your internal financial records with an external statement from a financial institution. This process ensures that the balance in your records, such as a checkbook or accounting software, accurately matches the balance reported by your bank or credit card company. The primary purpose of reconciliation is to verify the accuracy of transactions, identify any discrepancies, and gain a clear understanding of your financial position.

Preparing for Reconciliation

Before beginning the comparison process, gather all necessary information and documents. Identify the specific account you intend to reconcile, whether it is a checking, savings, or credit card account. Each account requires its own separate reconciliation.

Next, gather the official statement from the financial institution for the chosen account. These statements typically cover a specific period, including the statement period dates and the ending balance. Alongside this external document, collect your own internal records for the same account and period. These internal records could be a personal checkbook register or a transaction log from financial software.

Verify the starting balances. The opening balance on your internal records for the current period should match the closing balance from the financial institution’s statement for the prior period. This ensures a consistent baseline and prevents carry-over errors.

Steps to Reconcile an Account

Once all preparatory materials are in order, the reconciliation process involves comparing transactions between your internal records and the external statement. Begin by matching all deposits and other credits listed in your internal records against those appearing on the bank or credit card statement. As each item is located on both documents, mark it off.

Next, compare all withdrawals and debits. This includes checks you have written, ATM withdrawals, debit card purchases, electronic fund transfers, and any other payments. Mark off each corresponding transaction on both your records and the statement once a match is confirmed.

After matching all transactions, you will likely identify outstanding items. These are transactions you have recorded in your internal books that have not yet appeared on the financial institution’s statement. Common examples include recently written checks that have not yet been cashed or recent deposits that have not yet fully posted to your account. These outstanding items represent legitimate transactions that simply have not cleared the bank by the statement date.

Additionally, account for any bank charges, fees, or interest earned that appear on the statement but may not yet be in your internal records. Financial institutions may deduct monthly maintenance fees or charge overdraft fees. Conversely, interest-bearing accounts will show interest earned. Add any new charges to your internal records as debits and any interest earned as credits.

Finally, calculate the adjusted balances for both your internal records and the bank statement. For the bank statement, take the ending balance provided on the statement, add any outstanding deposits, and subtract any outstanding withdrawals. For your internal records, take your ending balance, subtract any bank charges or fees you just added, and add any interest earned. The goal is for these two adjusted balances to match, confirming accuracy.

Addressing Discrepancies

If, after calculating the adjusted balances, your internal records do not match the financial institution’s statement, it indicates a discrepancy that requires investigation. Common reasons for these imbalances include mathematical errors, transactions missed during recording, duplicate entries, or even errors made by the financial institution.

To locate errors, re-check all calculations performed during the reconciliation process. Review for transposition errors, such as swapped digits, which can often reveal the source of an imbalance. Examining small differences can also be helpful, as these often point to specific fees or overlooked minor transactions.

Review both your internal records and the external statement for any missing or duplicate entries. Compare each transaction line by line, ensuring every item is correctly accounted for and no transaction has been entered twice.

Once an error is identified in your internal records, make the necessary corrections. If, after thorough investigation, you suspect an error on the part of the financial institution, contact them. Be prepared to provide specific details and documentation to support your claim.