Foundation 6 of 20 · Record
How to Do a Bank Reconciliation, Step by Step
Two Stories About the Same Money. Make Them Agree.
"Why does the bank say one number and our books say another?" If your books and your bank statement show different totals, nobody has to have stolen anything. Here is how to do a bank reconciliation, line by line, and what to do with every difference you find.
Last Updated: 10/25/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Short Answer
What Is a Bank Reconciliation?
Textbook Definition
A bank reconciliation is the process of comparing the cash balance in a company's accounting records to the balance on its bank statement and explaining or correcting every difference, such as deposits in transit, outstanding checks, bank fees, and errors.
In Plain English
A bank reconciliation is matching your books to your bank statement, line by line, until the two totals agree. Every difference gets sorted into one of three buckets: not posted yet, not written down yet, or a real mistake.
Why It Matters
Why Do the Books and the Bank Drift Apart?
Your ledger is what you think happened. The bank statement is what the bank thinks happened. Two different hands write them, and they drift apart for completely ordinary reasons: a deposit written down twice, a fee nobody saw, a check that is in the book but has not reached the bank yet.
None of that is theft. All of it is invisible until somebody puts the two side by side. Skip the match long enough and the book slowly turns into fiction. You make decisions on a balance that is not real, and the one month something truly goes wrong, nobody notices.
Signs you have this problem:
- You have never compared your ledger to a bank statement line by line.
- Your book balance and your bank balance are "usually about the same."
- You find bank fees you did not know you were paying.
- Someone else writes the book and someone else makes the deposits, and nobody checks the two against each other.
- A payment bounced and you found out from the supplier.
- You reconcile only when the numbers look wrong.
What It Looks Like
What It Looks Like When Nobody Matches the Two
From the Fabled Forest · Chapter 6
Sheldon and Percy, the Crandall twins, run a lock and security company and agree on almost nothing. One Saturday they stood in the bank lobby waving papers at each other. The bank said the business had 312 coins. Percy's book said 340. Each twin was sure the other had lost twenty-eight coins.
Neither had ever matched the book to the statement. Coral, the youngest crab on the crew, asked to see both. She ticked every line that appeared in each, and three lines were left over: a deposit Percy had written twice, a two-coin bank fee nobody had recorded, and a six-coin deposit the bank had not posted yet.
Twenty minutes later, both sides read 318. Nobody had taken anything. The twins agreed on a number for the first time in their lives, and on who would do the match every month from now on.
The twins' story is Chapter 6 of Accounting and Finance for Small Businesses, Book 2 of Dr. Paul's Fabled Forest Business School Series.
The Fix
How to Do a Bank Reconciliation in 5 Steps
Most months this takes under an hour. It is the one check that eventually catches every kind of mistake.
Get the statement and the ledger for the same month.
Sit down with both the day the statement arrives. Same starting date, same ending date.
Tick every line that appears in both.
Go down the statement one line at a time. Find the match in your book. Tick it on both pages. Do not let anyone talk you through it. Just tick.
List what is left on each side.
Every unticked line is a difference. There are usually only a few. This short list is where the whole job happens.
Sort each difference into one of three buckets.
Outstanding items are real but not posted by the bank yet, like a late deposit or an uncashed check: note them and wait. Items not yet recorded, like a bank fee, go into your book. Errors, like a deposit written twice, get fixed in your book today.
Confirm both corrected totals match.
Start with each balance, make the adjustments, and you should land on the same number. If you do not, keep looking. You have found something.
Dr. Paul's Insight
The most useful habit here is separating duties when you can. When one person writes the book and a different person does the match, mistakes get caught and temptation shrinks. It is not about distrust. It is the same reason every auditor asks for reconciliations first. In a one-person business, the match is still worth doing yourself, every month, because you are checking your own memory against a record you did not write.
Sample: A One-Month Bank Reconciliation
Start from both balances, adjust each side, and land on one number.
| Item | Book | Bank |
|---|---|---|
| Starting balance | $3,400 | $3,120 |
| Deposit entered twice (error: fix the book) | −$200 | |
| Bank fee not yet in the book (add it) | −$20 | |
| Deposit not yet posted by the bank (outstanding: wait) | +$60 | |
| Corrected balance | $3,180 | $3,180 |
Sample for illustration. Note outstanding items and check that they clear next month.
Watch
Video: How to Reconcile Your Bank Account
How to Do a Bank Reconciliation, Step by Step
Dr. Paul ticks a month of statement lines and sorts every difference on screen.
From the Book
One Writes It, One Carries It
Chapter 6 · Bank Reconciliation
Two Crabs, Two Totals: A Shell Game
"Who kept the book?" asked Doctor Owl, from the line.
"I did," said Percy. "Every deposit, every check. Back it up."
"And who takes the deposits to the bank?"
"My crew," said Sheldon. "Every Friday. Bolt it down."
"So one of you writes it, and the other one carries it, and neither of you has ever sat down with the statement and the book and matched them, line by line."
Where did the twenty-eight coins go, and who finally found them? Find out in Chapter 6. Book 2 of Dr. Paul's Fabled Forest Business School Series.
Get the Book on Amazon →FAQ
Bank Reconciliation Questions
What is a bank reconciliation in simple terms?
How often should I reconcile my bank account?
What are outstanding items?
What do I do if my bank reconciliation does not balance?
Keep Going
Related Foundations
Bank reconciliation is the check on your records. These three foundations feed it. New to a term on this page? Every one is in the accounting and finance glossary.
Foundation 1 · Separate Business and Personal Finances
Reconciling is far easier when only business money runs through the account.
Foundation 2 · Bookkeeping
A clean weekly ledger makes the monthly match quick.
Foundation 10 · Recordkeeping and Business Deductions
The bank record can rescue a deduction when a receipt goes missing.
Written by Dr. Paul Borosky, DBA, MBA, business consultant, author, and educator with an MBA focused in finance. Want someone to take the monthly match off your plate? See fractional CFO services.
This page is for general educational purposes only. It is not legal, financial, tax, accounting, or lending advice. Tax rules change by place and by year. Dollar figures are illustrations. The Fabled Forest and its characters are fictional. For decisions about your own business, consult a qualified professional.