How to Reconcile Your Accounts With a Bank Statement

Account reconciliation involves comparing two independent sets of financial records to ensure they align, particularly for managing bank accounts. For individuals and small businesses, this means matching transactions recorded in your internal ledger or accounting software with those on your bank statement. This practice ensures all transactions are accurately accounted for and helps identify errors, detect unauthorized transactions, and maintain precise financial oversight.

Gathering Your Materials

Before beginning the reconciliation process, gather all necessary financial documents. You will need your most recent bank statement, which can be physical or digital, summarizing account activity for a specific period, including beginning and ending balances. Alongside this, you need your internal financial records, such as a checkbook register, detailed ledger, or accounting software reports.

These personal records contain your recorded transactions, including deposits, checks, and electronic payments. Both your bank statement and internal records should provide corresponding details for each transaction, such as dates, amounts, and any reference numbers. Having both sets of records readily available ensures you have all the necessary inputs for comparative analysis.

Step-by-Step Reconciliation

Account reconciliation involves systematically comparing your financial records with your bank statement. Begin by verifying the opening balance on your current bank statement against the ending balance from your previous reconciliation or the starting balance in your internal records. These two figures should precisely match, confirming a consistent starting point. Next, compare each transaction listed on your bank statement, such as deposits, checks cleared, and electronic fund transfers, against the corresponding entries in your own accounting records.

As you identify matching transactions, mark them off in both your internal records and on the bank statement. This methodical approach helps ensure every transaction is accounted for and matched. After reviewing all bank statement entries, identify any transactions in your records that do not appear on the bank statement. These typically include outstanding checks not yet cashed or recent deposits not yet processed by the bank, often referred to as deposits in transit.

To arrive at an adjusted bank balance, take the ending balance from your bank statement, add any deposits in transit, and subtract any outstanding checks. This calculation creates a modified bank balance that accounts for items the bank has not yet processed. Finally, compare this adjusted bank balance to the ending balance in your internal accounting records. If all transactions have been accurately recorded and identified, these two adjusted balances should be identical, indicating a successful reconciliation.

Resolving Discrepancies

If the adjusted bank balance does not match your internal records after the initial comparison, it indicates a discrepancy requiring investigation. Common reasons include errors in recording transactions, such as mathematical mistakes, transposing numbers (e.g., $54 instead of $45), or omitting a transaction entirely. Occasionally, a discrepancy might stem from a bank error, though these are less frequent. Another common source of imbalance arises from unrecorded bank charges, such as monthly service fees, or interest earned on your account, which may only appear on the bank statement.

To locate the source of an imbalance, begin by re-calculating all additions and subtractions in your records and on your adjusted bank statement. A useful technique involves dividing the difference between the two balances by nine; if the result is a whole number, it often points to a transposed digit error. Next, meticulously review each transaction, comparing the dates and amounts in both sets of records for inconsistencies. Pay particular attention to smaller amounts that might represent bank fees, such as a monthly maintenance fee ranging from about $5 to $35, or interest payments, which might be a very low annual percentage yield (APY), sometimes as low as 0.01% on a checking account.

Once an error is identified, whether it is an unrecorded bank fee, an incorrect amount entered in your ledger, or a forgotten deposit, make the necessary correction in your internal records. For instance, if a bank service charge was not recorded, it should be entered into your ledger as an expense. If the bank made an error, such as crediting an incorrect amount or failing to process a transaction, you would typically need to contact the bank directly to resolve the issue. Correcting these discrepancies ensures your financial records accurately reflect the true balance of your account.

Finalizing Your Records

Upon successfully reconciling your account, where your adjusted bank balance matches your internal records, the next step involves updating your financial information. Integrate any adjustments discovered during the reconciliation process into your permanent records. This includes recording any bank service charges, interest earned, or corrections for errors you identified in your own entries. For example, if you found an unrecorded check, ensure it is properly noted and its amount reflected in your ending balance.

After all adjustments are made, clearly note the date of the reconciliation in your records. This practice creates a clear audit trail and helps establish a consistent reconciliation schedule. It is also advisable to retain copies of your bank statements and any reconciliation worksheets or reports for future reference. Maintaining these documents can be useful for tax purposes, financial analysis, or resolving any future discrepancies. Regular reconciliation provides a reliable foundation for informed financial decisions and helps maintain accurate financial health.