What is Bank reconciliation?
Bank reconciliation is the process of matching every transaction in your books to your bank statement so the two balances agree and errors surface.
A bank reconciliation compares the cash account in your general ledger with the statement your bank sends. Each deposit and withdrawal in the books is ticked off against the matching line on the statement. Items that appear on only one side are explained: cheques written but not yet cashed, deposits in transit, bank fees and interest you have not recorded, or plain mistakes. When everything is accounted for, the adjusted book balance equals the adjusted bank balance.
Reconciling monthly is the minimum for most businesses, and busy retailers often reconcile weekly. It catches duplicate entries, missed payments, card processor deposits that net out fees, and fraud such as cheques you did not write. It is also the foundation for trustworthy financial statements: if the cash figure is wrong, the profit figure probably is too. Accountants usually ask for reconciled bank accounts before they start year-end work.
Software makes this much faster. Bank transactions come in by statement import or a bank connection, rules suggest matches for recurring items like rent or processor deposits, and you approve or correct each one. Once a month is reconciled, locking that period stops anyone from editing transactions that have already been matched, which keeps the reconciliation from quietly coming undone.
Books show $12,400 cash at month end; the bank statement shows $13,150. A $900 supplier cheque has not cleared (subtract from bank: $12,250) and a $150 bank fee is not in the books (subtract from books: $12,250). Both sides now agree at $12,250, and you record the fee.
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