Bank Reconciliation

Bank reconciliation compares your internal cash records to bank statements. It catches data entry errors, unauthorized transactions, and timing differences such as outstanding checks and deposits in transit. Regular reconciliation is a basic internal control every business needs.

Why Reconciliation Matters

Without reconciliation, cash balances in your system may diverge from reality for months. That distorts forecasts, payroll planning, and lender covenants.

Reconciliation also detects fraud early—unexpected withdrawals or altered payee names stand out when matched line by line.

Step-by-Step Process

Start with the bank statement ending balance and the ledger cash balance for the same date. List deposits in transit and outstanding checks to bridge any gap.

Match cleared transactions one to one. Flag duplicates, missing entries, and amount mismatches for investigation.

• Verify statement and ledger period dates align
• Match cleared deposits and withdrawals
• Adjust for outstanding checks and deposits in transit
• Investigate and document all unreconciled differences

Common Discrepancies

Bank fees, interest income, and automatic transfers often appear on statements before books. Record these adjusting entries promptly.

Payroll batches and merchant settlements may cross month boundaries. Use cutoff reports from payment processors to align timing.

Tools and Controls

Bank feeds accelerate matching but still require human review. Auto-suggested matches should not bypass approval for large or unusual items.

Segregate reconciliation duties from payment initiation where team size allows. Lock reconciled periods to preserve integrity.

Key Takeaways

• Reconcile every material cash account at least monthly
• Bridge ledger and bank balances with timing adjustments
• Investigate unreconciled items promptly with documentation
• Use feeds for speed but retain review controls for accuracy