How to prepare a bank reconciliation

A bank reconciliation explains the difference between the cash or bank balance in your accounting records and the balance shown by the bank statement at a specific date.

1. Confirm the period and account

Use one bank account and one statement period at a time. Record the statement opening balance, closing balance and statement date before matching individual transactions.

2. Match transactions that appear in both records

Compare deposits, transfers, withdrawals, supplier payments, customer receipts, bank fees and other movements. Matching should consider amount, date, reference and counterparty rather than relying on amount alone.

3. Identify timing differences

Some transactions may be valid in the ledger but not yet visible on the statement, or visible on the statement before they have been recorded internally. Common examples include outstanding payments, deposits in transit and settlement delays.

4. Investigate unexplained differences

Do not force a reconciliation to balance by inserting an unexplained adjustment. Trace duplicate postings, omitted transactions, wrong amounts, incorrect dates and transactions posted to the wrong bank account.

5. Record legitimate adjustments

Bank charges, interest and other statement-only items should be posted through controlled accounting entries with a clear description, account mapping and audit trail.

6. Complete and retain the reconciliation

A completed reconciliation should show the statement balance, ledger balance, recognised timing differences, approved adjustments, preparer and completion date. Larger organisations should also retain independent review where policy requires it.

What good reconciliation software should provide

• statement-period and account-level reconciliation sessions;
• support for one-to-many and many-to-many transaction matching;
• suggested matching based on amount, date, reference and counterparty text;
• controlled posting of bank charges, interest and fees;
• a complete history of preparation, adjustments and completion.