Short answer
A bank reconciliation compares the ending balance on your bank statement with the cash balance in your books and explains every difference. Add deposits in transit to the bank balance and subtract outstanding checks. Then adjust your book balance for items only the bank knows about, such as fees, interest and returned checks. When the adjusted bank balance equals the adjusted book balance, the account is reconciled. IRS Publication 583 recommends doing it every month.
Your bank statement and your books should tell the same story about your cash. They rarely match exactly on any given day, because some transactions reach one before the other. A bank reconciliation explains the gap, item by item, and proves the books are right.
IRS Publication 583 puts it plainly: you should reconcile your checking account each month, and when you receive your bank statement, make sure the statement, your checkbook and your books agree. Reconciling corrects errors in any of them.
Why a bank reconciliation matters
- It catches errors. A sale entered twice, a typo in an amount, a payment posted to the wrong month.
- It catches what you missed. Bank fees, interest, automatic payments and card charges you never recorded.
- It spots fraud early. A charge you don't recognise stands out when every line has to be matched.
- It makes tax time faster. Reconciled books are the basis of an accurate return. Our tax preparation checklist starts from them.
How to do a bank reconciliation in 7 steps
- Get the bank statement and your books for the same period. Use the statement's start and end dates.
- Check your own figures first. Publication 583 suggests making sure your checkbook arithmetic is right before you start.
- Compare deposits. Tick off every deposit on the statement against your books. Deposits in your books but not on the statement are deposits in transit.
- Compare checks and payments. Tick off every withdrawal. Checks you wrote that haven't cleared the bank are outstanding checks.
- Adjust the bank balance. Statement ending balance, plus deposits in transit, minus outstanding checks.
- Adjust the book balance. Your book balance, minus bank fees and returned (NSF) checks you haven't recorded, plus interest you haven't recorded, plus or minus any errors you found.
- Compare and record. The two adjusted balances should be equal. Then record the book-side adjustments (fees, interest, corrections) so your books match going forward.
Bank reconciliation example
Here is a worked example with made-up numbers for a business's checking account at March 31.
| Bank side | Amount |
|---|---|
| Ending balance on the bank statement | $12,480.00 |
| Add: deposit in transit (March 31 sales, deposited April 1) | + $1,250.00 |
| Less: outstanding check #1043 | - $640.00 |
| Less: outstanding check #1045 | - $315.00 |
| Adjusted bank balance | $12,775.00 |
| Book side | Amount |
|---|---|
| Cash balance in the books | $12,795.00 |
| Less: monthly bank service fee not yet recorded | - $25.00 |
| Add: interest earned, not yet recorded | + $5.00 |
| Adjusted book balance | $12,775.00 |
Both sides come to $12,775.00, so the account is reconciled. The bookkeeper then records the $25 fee and the $5 interest in the books. The deposit in transit and the two checks need no entry: they will clear the bank next month.
Why your books and bank don't match: common reasons
| Difference | Which side to adjust |
|---|---|
| Deposit in transit | Bank side (add) |
| Outstanding check or payment | Bank side (subtract) |
| Bank fee or service charge | Book side (subtract) |
| Interest earned | Book side (add) |
| Returned customer check (NSF) | Book side (subtract) |
| Automatic payment not recorded | Book side (subtract) |
| Error in your books | Book side (correct it) |
| Bank error | Bank side, and contact the bank |
If the difference won't go away, check for a transposed number (a difference divisible by 9 often points to one), an entry recorded twice, or a transaction recorded in the wrong month.
Reconciling in QuickBooks or Xero
Accounting software does most of the matching for you. QuickBooks Online and Xero both pull in bank transactions and have a reconcile screen where you enter the statement's ending balance and tick off the items. The steps above are still what happens behind the screen, and the software can't tell you why a transaction is missing. Someone has to look.
Reconcile credit card, loan and payment app accounts the same way, against their own statements. Many banks also print a reconciliation worksheet on the back of the statement.
How often should you reconcile?
At least monthly, as soon as each statement arrives. Busy accounts can be reconciled weekly. Leaving it for months turns a ten-minute job into a long search, and an unauthorised charge may be harder to dispute once time has passed.
Keep the statements and reconciliation reports with your other records. Our guide to how long to keep business records has the time limits.
How Top Accounting Firm can help
Monthly reconciliation of every bank and card account is part of our bookkeeping service. If your accounts haven't been reconciled for a while, we can catch them up. Comparing options? Read outsourced vs. in-house bookkeeping, or book a free consultation.
Frequently asked questions
What is a bank reconciliation?
How often should a small business reconcile its bank account?
What are deposits in transit and outstanding checks?
Do I record deposits in transit in my books?
Why doesn't my bank reconciliation balance?
Do I need to reconcile credit card accounts too?
Sources
Checked against these sources on October 26, 2026. This article is general information, not tax or legal advice. Rules, fees and deadlines change, so confirm with the official source or a tax professional before you file.
