How to Reconcile Your Bank Account With Your Records

Bank reconciliation is a key practice for managing finances, for individuals or businesses. This process compares financial records maintained by a bank with those kept by an account holder. Its purpose is to ensure both sets of records accurately reflect the same financial position. By reviewing transactions, reconciliation helps identify discrepancies, prevent fraud, and confirm the precise cash balance available. This regular check provides assurance regarding the accuracy of financial data.

Gathering Necessary Information

Before beginning reconciliation, collect all relevant documents and financial details. The main document is the bank statement, which summarizes all transactions for a specific period. This statement includes the starting and ending balances, deposits, withdrawals, fees, and interest. Statements are available via postal mail or as downloadable files from online banking platforms.

Alongside the bank statement, you will need your own financial records. This could be a checkbook register or digital accounting software. Ensure your personal records are current, reflecting all checks, deposits, and electronic transactions up to the reconciliation date. Current records ensure an accurate starting point for comparison.

During this phase, identify any outstanding checks you have written that have not yet appeared on your bank statement. These are payments you initiated that the bank has not yet processed. Similarly, pinpoint any deposits in transit, which are funds you have submitted to the bank but that have not yet been recorded on your statement due to processing delays.

Additionally, review your bank statement for any bank service charges or fees that you have not yet recorded in your own books. These can include monthly maintenance fees or overdraft charges, which banks typically deduct automatically. Conversely, look for any interest earned that the bank has credited to your account. This interest income needs to be added to your records to ensure they are complete.

Finally, look for any potential errors, either in your own records or on the bank statement. Mistaken entries, forgotten transactions, or bank processing errors can cause discrepancies. Early identification helps streamline subsequent adjustment steps. This comprehensive collection establishes a solid foundation for accurate reconciliation.

Adjusting the Bank Balance

The first step involves modifying the ending balance reported on your bank statement. This adjustment accounts for items the bank has not yet processed by the statement date. Begin with the ending cash balance stated on your bank statement. This figure represents the bank’s perspective of your account.

To this bank statement balance, add any deposits in transit. These are funds you have deposited that the bank has not yet posted to your statement. Adding these amounts ensures that the bank’s balance reflects all money that has actually reached your account.

Following this, subtract any outstanding checks from the bank statement balance. These checks represent payments you have issued that have not yet been presented to or cleared by the bank. Removing these amounts accounts for funds that have left your control but are not yet reflected by the bank.

The resulting figure, after adding deposits in transit and subtracting outstanding checks, is known as the adjusted bank balance. This amount represents what your bank balance would be if all transactions were aligned as of the statement date. This adjusted balance must ultimately match your adjusted records balance for a successful reconciliation.

Adjusting Your Records

The next phase focuses on updating and correcting the balance in your financial records. Start with the ending cash balance as recorded in your checkbook register or accounting software. This figure represents your internal view of available funds before any reconciliation adjustments.

To this balance, add any interest earned that the bank has credited to your account. This appears on your bank statement but may not be recorded in your records. Incorporating this interest income ensures your internal balance reflects all money you have gained.

Conversely, subtract any bank service charges or fees that the bank has deducted from your account. These can include monthly service fees, overdraft charges, or fees for specific transactions, which are typically automatically debited by the bank. Recording these deductions updates your balance to reflect all direct bank expenses.

Finally, correct any errors you may have made in your own records. This could involve transposing numbers when recording a check amount, forgetting to record a deposit, or entering a transaction twice. Adjusting for these internal mistakes ensures your records accurately reflect financial activity. The resulting figure, after these additions and subtractions, is your adjusted records balance, which should align with the adjusted bank balance.

Resolving Discrepancies

After adjusting both your bank and records balances, these two adjusted figures must precisely match. If they do not, a remaining discrepancy requires further investigation. The goal is to achieve perfect alignment between these two calculated balances.

Common reasons for an imbalance include simple mathematical errors in your additions or subtractions during the reconciliation process. It could also stem from unrecorded transactions, where an item was missed in either your records or the bank’s processing, or duplicate entries. Transposition errors, where numbers are accidentally reversed, are another frequent cause, often resulting in a difference that is evenly divisible by 9.

To troubleshoot, re-check all your calculations for both adjusted balances. Even a minor arithmetic mistake can prevent matching. Next, compare every transaction on your bank statement against your records, marking off cleared items. This thorough comparison helps identify any missing or unmatched transactions.

Look for overlooked amounts, such as unrecorded ATM withdrawals or debit card purchases. Pay close attention to transactions that are exactly double or half of another amount, as this indicates an entry error. If a discrepancy persists and you suspect a bank error (e.g., incorrect deposit or unauthorized charge), gather specific details and contact your bank for clarification. They can investigate their records to resolve any bank-side issues.