Bank reconciliation: what to do when the bank and your books disagree

Two balances for the same account

Michael Turner runs a small print shop: business cards, invitations, posters for the shops in the neighbourhood. On 31 March he downloads his bank statement: the bank says he has 8,940. His books say 9,615. There is a difference of 675, and on Friday he has to pay for paper.

His first reaction is to fear the worst: a wrongful charge, a customer who did not pay, an error in his books. His second reaction is better. He puts the bank statement next to the Bank account in his general ledger and starts ticking off, one by one, the transactions that appear on both sides. That, without knowing it, is a bank reconciliation.

What a bank reconciliation is

Reconciling means comparing the bank statement with the bank account in your books, transaction by transaction, and explaining every difference until both paths lead to the same balance. It is not about copying the bank's balance into the books: it is about understanding why they differ and correcting only what is really missing.

Why they almost never match

• Cheques issued that the supplier has not yet cashed: they have left your books, but not yet the bank.
• Deposits in transit: you recorded them, but the bank credits them a day or two later.
• Fees, interest and automatic charges: the bank recorded them, but you have not yet.
• Errors: a figure copied wrongly, a transaction recorded twice, on your side or, rarely, on the bank's.

Reconciliation in five steps

1. Gather the month's bank statement and the general ledger for the Bank account, for the same period.
2. Tick every transaction that appears in both with the same amount.
3. List what appears only in your books: uncashed cheques and deposits in transit. They adjust the bank's balance.
4. List what appears only at the bank: fees, interest, automatic charges. They adjust your books, with one entry each.
5. Check that the two adjusted balances are equal. If they are not, there is still an error to find.

Michael's example, worked

After ticking, Michael is left with four transactions without a match: a deposit of 1,200 he made on the 31st and the bank credited on 1 April, a cheque for 650 to the paper supplier not yet cashed, a bank fee of 25 and the automatic internet payment of 100 he forgot to record.

Both paths arrive at 9,490. The deposit and the cheque need no entry: the bank will record them in the coming days. The fee and the internet do, because they are real expenses missing from the books:

How often to reconcile

At least once a month, when the statement arrives, and before closing the month in your books. If the business has many transactions, once a week. Reconciling one month takes minutes; reconciling a whole year takes days.

Warning signs

• A difference that cannot be explained and repeats month after month.
• Cheques uncashed for many months: worth a call to the supplier.
• Charges nobody recognises, or that appear twice.
• Deposits in transit that never reach the bank.

What changed for Michael

Michael paid for the paper on Friday, without a scare. Since then he reconciles on the first working day of every month with a coffee and the bank statement; it takes him twenty minutes. In June the reconciliation showed him a duplicated charge from the card processor. He disputed it and got it back. Without reconciling, he would have paid it twice.

Where Aconta Online comes in

Aconta Online does not connect to your bank: you reconcile with the statement in hand. What it does give you is the general ledger for the Bank account, in date order, with every transaction and its balance, which is exactly the other half of the reconciliation. Adjustments are recorded as entries and stay in the history, and once the month is reconciled and reviewed, you can close it so nothing changes it afterwards. The first company is free, no card required.