What Does It Mean to Reconcile Your Bank Account?

Bank accounts are fundamental tools for managing daily finances, allowing for deposits, withdrawals, and various transactions. Bank reconciliation is a practice that helps ensure the accuracy of your financial records.

What Bank Reconciliation Is

Bank reconciliation involves systematically comparing your personal financial records with the records provided by your bank. Your personal records might include a checkbook register, a transaction log, or entries in personal finance software. The bank’s records are typically found on your monthly bank statement. By aligning these records, you can identify any transactions that might be missing from your personal ledger or that appear incorrectly on either side. It also helps to detect any unauthorized activity or errors that may have occurred.

Information Needed for Reconciliation

Before starting the reconciliation process, gathering specific documents and information is necessary. You will need your bank statement for the period you intend to reconcile, which typically covers a month. This statement lists the beginning balance, the ending balance, and all transactions processed by the bank within that specific timeframe, including deposits, withdrawals, and bank fees.

Alongside the bank statement, you require your personal financial records for the exact same period. These records might be a physical checkbook register, a digital spreadsheet, or entries within personal finance software where you track your transactions. From both sources, you will focus on specific data points such as transaction dates, amounts, check numbers, and descriptions to ensure accurate matching.

The Reconciliation Process

The reconciliation process begins by comparing the deposits recorded in your personal financial records with those listed on your bank statement. As you find matching deposits, you should mark them off in both your records. Next, compare all withdrawals, checks, and debit card transactions from your personal records against the bank statement, marking off each item that matches.

After matching all directly corresponding transactions, identify any transactions present on the bank statement that are not in your personal records. These often include bank service fees, interest earned, or automatic direct debits or credits that you might not have manually recorded. Add these unrecorded transactions to your personal financial records.

Conversely, identify any transactions in your personal records that have not yet appeared on the bank statement, such as recently written checks that have not yet cleared the bank or deposits made very recently. These are known as “outstanding items.” Once you have identified all outstanding items, you will calculate an adjusted balance for both your bank statement and your personal records, aiming for these adjusted balances to match.

Addressing Discrepancies

If, after performing the reconciliation steps, your adjusted bank balance does not match your adjusted personal record balance, a discrepancy exists. Common reasons for these differences include unrecorded transactions, such as bank fees or interest, which might have been overlooked in your personal records. Mathematical errors made during your own record-keeping or even by the bank can also lead to imbalances. Occasionally, duplicate entries or missing transactions in either set of records can cause issues.

While less common for personal accounts, fraudulent transactions are a possibility, where unauthorized activity appears on your statement. To find errors, begin by re-checking all calculations made during the reconciliation process. Then, systematically review each transaction line by line, looking for transposed numbers (e.g., $52.00 entered as $25.00) or other data entry mistakes. If, after a thorough review, you suspect an error on the bank’s part, contacting your financial institution for clarification and resolution is the appropriate next step.