Blog Post
The Ultimate Step-by-Step Guide to the Bank Reconciliation Process
Bank reconciliation is the cornerstone of accurate financial reporting. It ensures that the cash balance shown on your balance sheet actually exists in the bank. While the concept is simple—matching your records to the bank's—the execution can be complex. This guide breaks down the bank reconciliation process into actionable steps for accountants and business owners.
Step 1: Gather Your Documentation
Before you start, ensure you have the necessary documents for the period (usually the previous month):
- Bank Statement: The official record from your bank (PDF or digital feed).
- General Ledger (GL) Report: A detailed list of all cash transactions recorded in your accounting software.
- Last Month's Reconciliation: To check for outstanding items that should clear this month.
Step 2: Match Deposits and Credits
Compare the deposits in your GL to the credits on the bank statement.
- Matched: If amounts and dates align, check them off.
- Deposits in Transit: Money you received and recorded but the bank hasn't processed yet (e.g., end-of-month cash deposits). These are added to the bank balance.
Step 3: Match Checks and Debits
Compare outgoing payments.
- Outstanding Checks: Checks you wrote that haven't been cashed. These are deducted from the bank balance.
- Bank Charges: Service fees, wire fees, or NSF fees found on the statement but not in the GL. These need to be recorded in your books.
Step 4: Adjust the General Ledger
You will likely find items on the bank statement that are missing from your books. These require Adjusting Journal Entries:
- Interest Earned: Debit Cash, Credit Interest Income.
- Bank Fees: Debit Bank Service Charges, Credit Cash.
- NSF Checks: If a customer's check bounces, you must reverse the payment in your books.
Step 5: The Final Balancing Act
The Golden Rule of Reconciliation:
If these two numbers match, your reconciliation is complete. If not, you have a discrepancy (usually a data entry error or a transposed number) that must be investigated.
From Manual to Automated
While understanding the manual process is vital, performing it by hand is inefficient for high-volume businesses.
Reconwizz automates Steps 2 and 3 completely. It pulls bank data daily, matches transactions automatically, and highlights only the exceptions for you to review in Step 4.