What is a bank reconciliation, and how do you do one?

Short answer: a bank reconciliation compares the balance in your books with the balance on your bank statement for the same date, and explains every difference. The usual differences are cheques not cashed yet, deposits not cleared yet, and bank fees or interest you haven't recorded. When the adjusted balances match, you know your books are complete for that month.

Why don't the two balances match?

Your books and your bank record the same money at different moments.

  • Outstanding cheques. You wrote the cheque and recorded it, but the supplier hasn't cashed it.
  • Deposits in transit. You recorded a deposit on the 31st, the bank posted it on the 2nd.
  • Items only the bank knows about. Service fees, interest, a returned (NSF) payment, an automatic withdrawal you forgot.
  • Errors. A transaction entered twice, an amount typed as $540 instead of $450, or a personal purchase that slipped in.

Step by step

  1. Pick the statement end date (say October 31) and get the closing balance from the statement.
  2. Get your book balance for the bank account on the same date.
  3. Tick off every transaction that appears in both places.
  4. List what's in your books but not on the statement (outstanding cheques, deposits in transit). These adjust the bank side.
  5. List what's on the statement but not in your books (fees, interest, NSF items). Record them in your books.
  6. Compare the adjusted bank balance with the adjusted book balance. They should be equal to the cent.
  7. If they aren't, look for errors. A difference that divides evenly by 9 often means two digits were swapped.
  8. Save the reconciliation report with the statement.

A worked example

Your bank statement shows $8,450 on October 31. Your books show $7,940.

  • Cheque #112 for $1,200 to a supplier hasn't been cashed: subtract it from the bank balance.
  • A $650 customer deposit made on October 31 shows on the statement on November 2: add it to the bank balance.
  • The bank charged $40 in monthly fees that aren't in your books: record them, which lowers the book balance.

Bank side: 8,450 minus 1,200 plus 650 equals 7,900.

Books side: 7,940 minus 40 equals 7,900.

The two match, so October is reconciled. If cheque #112 is still not cashed in two or three months, call the supplier; a stale cheque can hide a lost payment.

How often should you reconcile?

Every month, for every bank account and every credit card, as soon as the statement is available. A three-month gap turns a ten-minute job into an afternoon of guessing. See how often to do your bookkeeping.

What software does for you, and what it doesn't

QuickBooks Online and similar tools import bank transactions and suggest matches, which saves a lot of typing. They don't replace the reconciliation. An imported transaction can be matched to the wrong entry, categorized twice, or skipped. The reconciliation screen is where you catch that.

Want us to reconcile your accounts?

Book a free 30-minute session at soleraaccounting.ca/rendez-vous or call 450 612-7223. If your accounts haven't been reconciled in a while, we can bring them up to date and show you where the differences come from. Service in French, English and Arabic.

This article is general information, not personalized accounting or tax advice.

Frequently asked questions

What is a bank reconciliation in simple terms?

It is a monthly check that the bank balance in your books matches your bank statement, after explaining timing differences such as uncashed cheques and deposits not yet cleared.

What should I do if my bank reconciliation doesn’t balance?

Look for transactions entered twice, missing bank fees, and typing errors. A difference that divides evenly by 9 often means two digits were swapped.

Does QuickBooks do the bank reconciliation automatically?

No. It imports and suggests matches, but you still need to reconcile each account to the statement to confirm nothing was duplicated, mismatched or missed.

Sources

Explore more

Book a call · (450) 612-7223