To reconcile bank statements, foot the statement, tick every line that appears in both the statement and your ledger, list what did not clear, adjust the statement balance and the ledger balance for those items, and confirm the two adjusted figures agree. Then post entries for anything your books are missing and sign the result.
What do you need before you reconcile bank statements?
You need four things on the desk before the first tick: the bank statement for the period, the ledger detail for the same account and dates, last month's finished reconciliation, and the supporting documents for any unusual item. Without the prior reconciliation you cannot tell which old checks are still outstanding.
Gather them in this order and check each one:
- The statement itself. Use the bank's own PDF or paper statement, not a screen of recent activity. Confirm the account number, the period and the page count. A missing page is the most common reason a statement fails to foot.
- The ledger detail. Print or export every transaction posted to the cash account for the statement period, plus any posted after the period end that are dated within it. Include the ledger balance at the statement date.
- Last month's reconciliation. Its outstanding checks and deposits in transit are this month's opening list. Each one should either clear on this statement or stay on the list.
- Source documents. Keep deposit slips, check copies and notices from the bank (returned items, fee notices) close at hand. An item with no document behind it should make you pause.
Check also that the statement's opening balance equals last month's closing balance. If it does not, something happened between the two statements that you have not seen, and the reconciliation should wait until you find it. The method for testing that continuity is covered in footing and continuity checks on a bank statement.
Steps 1 to 3: footing the bank statement and ticking cleared items
Steps 1 to 3 prove the statement is complete and mark what has cleared. You foot the statement to confirm its arithmetic, tick lines that appear on both the statement and the ledger, and then list everything left unticked on either side. Those leftovers are the raw material for the rest of the work.
The tickmark legend
A tickmark is a short symbol written beside a figure to show what you did to it. Use the same four every time, and print the legend on the reconciliation so a reviewer can read it without asking.
| Mark | Meaning | Used on |
|---|---|---|
| F | Footed: the column or statement was added and the total agrees | Statement totals, ledger totals |
| C | Cleared: the line appears on both the statement and the ledger with the same amount | Each matched line |
| O | Outstanding: the line is in the ledger but not yet on the statement | Checks and deposits in transit |
| A | Adjusted: the line needed an adjustment to one balance | Bank fees, interest, errors |
The seven steps
The list below is the whole procedure. Steps 1 to 3 are explained in this section and steps 4 to 7 in the next.
- Foot the statement (F). Add the opening balance and all credits, subtract all debits, and compare with the printed closing balance. If they differ, stop and find the gap before you tick anything.
- Tick cleared items (C). Go line by line through the statement and the ledger, marking each pair that agrees in amount and date range.
- List the unticked items. Anything in the ledger without a statement match is a candidate timing item (O). Anything on the statement without a ledger match is a candidate book-side item (A).
- Start from the statement balance and add deposits in transit and subtract outstanding checks.
- Start from the ledger balance and adjust for fees, interest, returned items and errors.
- Compare the two adjusted balances. They must be equal.
- Post the entries for book-side items, then sign and date the reconciliation.
Steps 1 to 3 on a short sample statement
The figures below are examples. They come from a fictional account for one month.
| Statement line | Debit | Credit | Mark |
|---|---|---|---|
| Opening balance | 12,000.00 | ||
| Deposit, 4 Sept | 4,000.00 | C | |
| Check 1041 | 1,200.00 | C | |
| Check 1042 | 850.00 | C | |
| Deposit, 18 Sept | 5,500.00 | C | |
| Check 1043 | 2,300.00 | C | |
| Service fee | 25.00 | A (not in ledger) | |
| Totals | 4,375.00 | 9,500.00 | F |
| Closing balance | 17,125.00 F |
Footing: 12,000.00 plus 9,500.00 less 4,375.00 is 17,125.00, which equals the printed closing balance. The statement foots.
Now compare with the ledger. The ledger shows the same three deposits and checks, plus a 30 September deposit of 3,100.00 and check 1044 for 640.00 written on 29 September. Neither appears on the statement, so both stay unticked. The service fee appears only on the statement. That is step 3 complete: two ledger-side timing items and one statement-side item.
Steps 4 to 7: adjusting both balances until they agree
Steps 4 to 7 carry the unticked items to an adjusted balance on each side, compare them, post what the ledger lacks and sign. Timing items adjust the bank figure; items the bank knows first adjust the ledger figure. When both adjusted balances are equal, the reconciliation is complete.
Steps 4 and 5: two columns of adjustments
Continuing the sample, the ledger balance at 30 September is 19,610.00: opening 12,000.00 plus receipts of 12,600.00 less checks of 4,990.00.
| Bank side | Amount | Book side | Amount |
|---|---|---|---|
| Balance per statement (F) | 17,125.00 | Balance per ledger | 19,610.00 |
| Add: deposit in transit, 30 Sept (O) | 3,100.00 | Less: service fee (A) | (25.00) |
| Less: outstanding check 1044 (O) | (640.00) | ||
| Adjusted bank balance | 19,585.00 | Adjusted book balance | 19,585.00 |
Step 6: compare
Both sides equal 19,585.00. If they do not, the difference is the size of the work left. Check the transpositions first (a difference divisible by nine often means two digits swapped), then look for a missing line, a duplicated line or a sign error. Do not move to step 7 with a difference open.
Step 7: post, sign, date
Post a journal entry for the service fee, which is the only item the ledger lacks. The deposit and the check are already in the ledger and need no entry. Sign and date the reconciliation, and give it to the reviewer along with the statement. Last, copy the two timing items to next month's list. A closer treatment of how they roll forward is in outstanding checks and deposits in transit.
To see a full month with more item types, including an NSF check and a transposition, read a bank reconciliation example worked line by line. If you prefer to do the matching in a spreadsheet, which Excel formula matches bank transactions best compares the options.
Which bank statement differences need a journal entry?
A difference needs a journal entry when your ledger is wrong or incomplete, and it needs only a line on the reconciliation when the ledger is right and the bank has yet to catch up. The question to ask of every item is which record has to change.
Sort the typical items this way:
| Item | Which record is off | Journal entry? |
|---|---|---|
| Outstanding check | Bank (timing) | No |
| Deposit in transit | Bank (timing) | No |
| Bank service fee | Ledger | Yes |
| Interest credited by the bank | Ledger | Yes |
| NSF or returned deposit | Ledger | Yes |
| Direct debit not yet recorded | Ledger | Yes |
| Ledger entry typed wrongly | Ledger | Yes, a correcting entry |
| Bank posted someone else's item | Bank | No, report it to the bank |
For the sample, the service fee entry debits bank charges expense for 25.00 and credits the cash account for 25.00. Use the date of the statement, and keep the bank's notice or the statement line as the support.
Two cautions apply. First, never post an entry for a timing item. Doing so records the transaction twice. Second, a bank error stays on the reconciliation as a bank-side item until the bank corrects it. If you book it in your ledger instead, you hide the bank's mistake and your books now disagree with what really happened.
Mistake: forcing a bank statement to balance with a plug
A plug is an unexplained amount entered to make the two adjusted balances equal. It hides the error instead of fixing it, because the real cause stays in the books while the reconciliation looks finished. The correct response to a difference is to find the cause or leave the reconciliation open.
Plugs are tempting for small amounts. A difference of 12.40 on an account with six figures of activity feels not worth an afternoon. The trouble is that a small net difference can be several large errors cancelling each other, and a plug buries all of them. It also trains the next person to accept unexplained items.
Signs a plug has crept in:
- A line labelled "miscellaneous", "adjustment" or "difference" with no document.
- A reconciling item that changes amount from month to month.
- A rounding line on an account that deals in whole cents and has no foreign currency.
When you cannot find a difference, narrow it down the way you would any search. Check whether the amount equals a single line (a missing or doubled entry). Check whether it is divisible by nine (a transposition). Check whether half of it equals a line (a debit entered as a credit). Compare the count of transactions on each side. If you still cannot find it, leave the item open, label it "unreconciled, under investigation", and tell the reviewer. An honest open item is better evidence than a tidy false one. PreciseBankFlow is built on the same principle: a statement that does not foot is marked out of balance and the difference is shown, never adjusted to fit.
How long should reconciling one bank statement take?
There is no fixed time, because the work scales with the number of lines and the quality of the records. A statement with few transactions and a ledger kept up to date can be reconciled quickly. A statement with hundreds of lines, many lumped deposits and a backlog of unrecorded items takes much longer.
Four things drive the time more than anything else:
- Line count. Each line has to be matched, so volume matters directly.
- Quality of the ledger. Entries with clear payees and check numbers match fast. Lumped deposits that combine several receipts do not.
- Whether last month closed cleanly. An old unresolved item gets carried and re-examined every month.
- Statement format. A scanned statement has to be typed or extracted before it can be footed. A statement that comes as clean data can be footed in seconds.
The best way to shorten the job is to reconcile in the month the statement arrives, while memory is fresh and the documents are easy to find. Lines you can match automatically are worth matching that way, but treat the unmatched remainder as the real work. If you want software to read the statement and run the footing step for you, the PreciseBankFlow homepage describes what it checks.