Why reconcile at all
Your bank statement and your books record the same money from two directions. The bank sees what cleared; your books see what you recorded. A reconciliation lines the two up and explains every difference. Until you do it, you do not know whether your cash balance, and therefore your profit, is right.
Reconciling also finds problems that would otherwise surface at year-end or in an audit: a supplier paid twice, a customer payment recorded to the wrong invoice, a bank fee nobody entered, or a card charge nobody recognizes. The longer you wait, the harder these are to trace. Reconcile every bank and credit card account at least monthly, and weekly if you have high volume.
Credit cards deserve the same attention as bank accounts. Business card statements often carry subscriptions nobody remembers signing up for, personal charges that need to be reclassified, and foreign-currency purchases with conversion fees. Reconciling them monthly keeps expenses accurate and gives you a natural moment to cancel services you no longer use.
Step 1: Gather the statement and check the starting point
Get the bank statement for the period, or download the transactions as a CSV file. Before matching anything, confirm that the opening balance on the statement equals the closing balance of your last completed reconciliation. If it does not, something in a prior period changed after you reconciled it, such as an edited or deleted transaction. Fix that first, or every later reconciliation will be off by the same amount.
Period locks prevent this. Once a month is reconciled and reviewed, lock it so no one can change transactions dated in that month without an authorized unlock.
Step 2: Match transactions
Go through the statement and match each deposit and withdrawal to a transaction in your books. Match by amount, date and payee. Most accounting software does much of this for you: import the bank file and the system suggests matches, and bank rules can categorize recurring items like rent, utilities or software subscriptions automatically.
In SeroBooks you can import a bank CSV file with rules that categorize repeating transactions, or connect accounts through Plaid; live bank feeds are rolling out. Either way, the matching screen shows what is cleared and what still needs attention.
- Deposits on the statement matched to recorded receipts
- Withdrawals matched to bills paid, cheques and transfers
- Bank fees, interest and charges you have not recorded yet
- Transfers between your own accounts matched on both sides
- Anything on the statement you do not recognize
Step 3: Record what is missing from your books
Some items appear on the statement but not in your books: monthly service fees, interest earned, NSF cheques returned, pre-authorized payments you forgot to enter, and loan payments. Record these now with the correct date and account.
Card processor deposits need special care. Processors usually deposit your sales net of fees, so a day with $2,000 in card sales might arrive as a $1,945 deposit. Record the full $2,000 as sales and the $55 as a merchant fee expense, then match the net deposit. Recording only the net amount understates both revenue and expenses, and it can make sales tax reporting wrong. A POS that posts daily sales to your books with fees separated makes this automatic.
Step 4: Identify timing differences
Some items are in your books but not yet on the statement. Outstanding cheques are cheques you wrote that the recipient has not cashed. Deposits in transit are deposits you recorded on the last day of the month that the bank processed the next day. These are normal timing differences, not errors, and they will clear next month.
Leave them uncleared and list them on the reconciliation. Watch for stale items: a cheque outstanding for six months may have been lost, and a deposit in transit that never clears may never have been made.
Step 5: Prove the balance
The reconciliation works when the statement’s closing balance, plus deposits in transit, minus outstanding cheques, equals the cash balance in your books. If the difference is zero, you are done.
If not, work through the usual suspects. A difference divisible by 9 often means transposed digits (entering $54 as $45). A difference equal to a specific transaction often means it was recorded twice or not at all. A difference of twice a transaction amount often means it was entered as a deposit instead of a withdrawal, or the reverse.
A worked example
Your March bank statement shows a closing balance of $18,420. Your books show cash of $17,265. Matching transactions reveals four items. Cheque 1042 for $1,350 to a supplier was written March 29 and has not cleared: an outstanding cheque. A deposit of $2,100 recorded on March 31 appears on the April statement: a deposit in transit. The bank charged a $45 monthly fee you had not recorded. And a customer’s $1,950 e-transfer was deposited but never entered in your books.
First, record what is missing from the books: the $45 fee reduces book cash to $17,220, and the $1,950 customer payment increases it to $19,170. Then adjust the bank side for timing differences: $18,420 plus the $2,100 deposit in transit, minus the $1,350 outstanding cheque, gives $19,170.
Both sides now show $19,170 and the reconciliation balances. The outstanding cheque and deposit in transit should both clear on the April statement; if they do not, investigate them as part of April’s reconciliation.
Step 6: Review, save and lock
Save the reconciliation report, with the list of outstanding items, as part of your month-end records. Have someone other than the person who records transactions review it when possible; separating those duties is one of the simplest fraud controls available to a small business. Then lock the period.
Bank reconciliation is the first step of a good month-end close. Our month-end close checklist covers what comes next: receivables, payables, inventory, payroll and sales tax.
If you work with an outside bookkeeper or accountant, give them access to the reconciliation reports rather than emailing statements back and forth. Accounting firms can join SeroBooks with free practice seats, so they can review reconciliations directly in your books.