Bank Reconciliation: How to Reconcile Your Bank Statement Step by Step

A bank reconciliation compares the cash balance in your own records with the balance on the bank statement at the same date, and explains every difference between them. Done each month, it catches missing transactions, bank charges you have not recorded, errors and unauthorised payments while they are still easy to fix. This guide explains the reconciling items, a step-by-step method and a complete worked example with every figure checked.

What is a bank reconciliation?

Your cash book (or the bank account in your accounting software) and the bank statement record the same account from two sides, so at any date they rarely show the same balance. Some items are in your records but have not reached the bank yet; others are on the statement but not yet in your books.

The standard approach is a two-sided reconciliation. You adjust the bank statement balance for items the bank has not yet processed, adjust the cash-book balance for items you have not yet recorded, and check that the two adjusted balances agree. When they do, the account is reconciled, and the adjusted cash-book figure is the correct cash balance for your accounts.

Common reconciling items

What you need before you start

• The bank statement for the period, with its closing balance
• Your cash book or bank ledger for the same period, with its closing balance
• Last month's reconciliation, including any items that were still outstanding
• Supporting documents for unusual items: remittance advices, cheque stubs, bank notices

How to do a bank reconciliation, step by step

1. Agree the opening position. Check that last month's outstanding items have now cleared, or carry them forward.
2. Tick off matching items. Match each receipt and payment in the cash book to the same amount on the statement. Work through both lists so nothing is ticked twice.
3. List unticked cash-book items. Receipts not yet on the statement are deposits in transit; payments not yet on the statement are unpresented payments.
4. List unticked statement items. Bank charges, interest, direct debits, direct credits and returned cheques that are not in your books.
5. Look for errors. Check any items that nearly match but differ in amount.
6. Prepare the reconciliation. Adjust the bank balance on one side and the cash-book balance on the other.
7. Confirm the result. The two adjusted balances must be equal. If they are not, find the cause; do not insert a balancing figure.
8. Post and sign off. Record the cash-book adjustments in your books, and have the reconciliation reviewed and signed off.

Worked example: reconciling at 30 September

The figures below are fictional. At 30 September 2026 a small design studio's bank statement shows a balance of 18,642.50, while its cash book shows 16,223.20 — a difference of 2,419.30. Ticking the two records against each other leaves these unmatched items:

• A customer receipt of 2,450.00 recorded and paid in on 30 September, not credited by the bank until 1 October
• Cheque 1187 for 1,320.00 and a bank transfer of 2,175.40 recorded in the cash book but not yet cleared
• Interest of 12.40, bank charges of 38.50 and an insurance direct debit of 210.00 on the statement but not in the cash book
• A customer bank transfer of 1,850.00 received but not yet recorded
• A customer cheque for 600.00 returned unpaid by the bank
• A supplier payment of 1,480.00 that was entered in the cash book as 1,840.00

Both adjusted balances are 17,597.10, so the account is reconciled. Check the bank side: 18,642.50 + 2,450.00 − 1,320.00 − 2,175.40 = 17,597.10. Check the cash-book side: 16,223.20 + 12.40 − 38.50 − 210.00 + 1,850.00 − 600.00 + 360.00 = 17,597.10.

The keying error is worth a closer look. The payment was recorded as 1,840.00 instead of 1,480.00, which overstated payments by 360.00 and understated the cash book by the same amount, so the correction adds 360.00 back.

Updating the cash book

Everything on the cash-book side must now be entered in your books, so that next month starts from the correct balance:

• Record interest received (12.40) and bank charges (38.50)
• Record the insurance direct debit (210.00) against insurance expense
• Record the customer transfer (1,850.00) against the customer's account
• Reverse the dishonoured cheque (600.00): the customer owes this amount again, so it goes back onto their receivable balance and should be chased
• Correct the supplier payment from 1,840.00 to 1,480.00

Do not enter the deposit in transit or the unpresented payments again — they are already in your books and will appear on next month's statement. Carry them forward and check that they clear.

When the reconciliation does not balance

If the adjusted balances still differ, use the size of the difference as a clue:

• Divisible by 9. A difference that divides exactly by 9 often points to transposed digits. In the example, before the keying error was found, the remaining difference was 360.00, and 360 ÷ 9 = 40.
• Equal to one item. An item may be missing from one side, or ticked twice.
• Equal to twice an item. A receipt may have been entered as a payment, or the other way round. Halve the difference and look for an item of that amount.
• A round amount. Check addition, and check that the opening balance agrees to last month's reconciled figure.

Preventing errors

• Reconcile every bank account at least monthly, soon after month-end.
• Use the bank's statement closing balance, not an online balance from a different date.
• Keep supporting evidence for every reconciling item.
• Investigate items outstanding for more than a few months, such as old uncleared cheques or deposits.
• Where possible, have someone other than the person who records payments review and sign off the reconciliation.
• Keep each month's reconciliation with its sign-off, so the history is available to your accountant or auditor.

Frequently asked questions

Related resources

This guide is general information, not financial, accounting or legal advice. The worked example uses fictional figures. Written and reviewed by Ghayas Uddin, MS (Finance), financial analyst. Last reviewed 15 October 2026. Found an error? Email support@babadigit.com.