How To Do Bank Reconciliation: A Beginner’s Guide 

Keeping your bank transaction records accurate is a determining factor in any business’s finances and management.  

How do you know if your bookkeeping records reflect exactly what appears on your bank statement? One way to check is through a bank reconciliation. 

This article will explain what it means to reconcile your bank account, why it’s important, and how to do a bank reconciliation.

What’s a bank reconciliation? 

Bank reconciliation refers to the process of comparing a business’s cash records to a bank statement. While scanning these documents, if you find any discrepancies or errors, you will need to figure out the cause of the differences and make adjustments to correct them.

Most companies perform bank reconciliations on a regular basis in order to maintain up-to-date, verifiably accurate data and prevent fraud bookkeeping errors and other issues. While some companies still do bank reconciliations manually, many software solutions are available to make the process easier, quicker, and more efficient, like Xero, Sage, or Zoho.  

Why should you do bank reconciliation regularly?  

The ultimate goal of a bank reconciliation is to catch any mistakes and errors made by anyone with access to a business’s bank account—including the bank itself.

That’s why, if you don’t perform bank reconciliations at regular intervals, these little mistakes can add up without being identified, which could lead to serious issues affecting your cash flow and operations management. 

By carrying out bank reconciliations regularly, you greatly increase the chance of finding errors, preventing your business from losing any money. 

For example, let’s look at some common problems that you may come across during your bank reconciliation:

  • Checks that are returned after being deposited: Banks can decline the deposit of a check for a variety of reasons. If this problem arises, reverse the entry representing the failed deposit by giving a credit to the cash account, reducing the balance, and increasing the debit in the account for accounts receivable.
  • Double payment: If you don’t notify the bank about a voided check, you might end up paying twice. Request reimbursement if the payee cashed a voided and replacement check.
  • Missing and uncleared checks: Doing bank reconciliations will help you pinpoint missing or uncleared checks. For recent checks, continue reconciling them as uncleared checks. For checks that have been uncleared for a long time, contact and confirm whether the payee received the check, and in some cases, void the check and issue a replacement.

You might also be interested in: The 5 Most Common Bank Reconciliation Problems for Small Businesses.

How often should you do bank reconciliation? 

This will mainly depend on the volume of your business’s transactions. If your business has money entering and leaving multiple times per day, you should reconcile on a daily basis. On the other hand, if the transactions don’t happen daily, you can reconcile every week or month. 

It’s best to have a regular schedule. Decide how often you need to reconcile and stick to it. This will ensure that your financial data stays updated and you keep your unreconciled bank statements from piling up. 

How to do a bank reconciliation – Step by step guide 

Though bank reconciliations may sound complicated, they’re actually quite easy. Follow these seven steps to complete a bank reconciliation: 

1. Get a copy of your most recent bank statement 

Ask your bank to obtain a list of every transaction you’ve made in a period of time that you want to check. You can request a paper copy or ask the bank to send the data straight to your email or accounting software. 

2. Have your accounting records ready 

To simplify the bank reconciliation process, make sure you have your records available for the same time period as the bank statement you are referencing. You can have it printed or make a separate spreadsheet to cross-check the bank’s records easily.   

3. Review your bank deposits and withdrawals 

Make sure each deposit appears as an income recorded in your accounts. If something is missing, take note of it so that later, you can determine whether it was a sale, interest, refund, or something else.

All bank withdrawals should be recorded in your books. However, you might find out a few things that you haven’t accounted for yet — the most common ones are bank fees and overdraft fees.   

4. Review the income and expenses in your books

Repeat this process exactly the same as step 3: go through every transaction, note the differences, and determine their cause. 

5. Adjust your bank statement 

Make the necessary adjustments to your bank statements’ balances to match the updated and corrected balance. You might have to add deposits in transit, deduct outstanding checks, and add/deduct bank errors to correct them.

6. Adjust your accounting records

You’ll also need to update your records to reflect the bank’s transactions appropriately. Go through the discrepancies you noted previously while checking your books and make changes accordingly.  

7. Compare the balances

The adjusted balances from the two sets of documents should be the same. If they’re still not equal, you will need to do the process of reconciliation again. When the numbers are perfect, you can mark this as the starting point for your next reconciliation.

The bottom line 

Bank reconciliation is an integral part of every business’s accounting procedure. It helps you improve accuracy, prevents losing money, and keeps track of your cash flow. Remember to reconcile frequently, as the longer you go without it, the more difficult it will be to catch up. 

Checking your receipts is one of the most effective ways to examine and adjust the differences you spotted during bank reconciliation. That’s why having all of your receipts in one place is super handy in these situations. 

Shoeboxed can help you with that. 

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The 5 Most Common Bank Reconciliation Problems for Small Businesses

A bank reconciliation is a process of comparing the balances between a business’s accounting records for cash to the corresponding information on a bank statement. In this process, the transactions recorded in the company’s cash book are compared to the bankbook to identify any discrepancies in the day-to-day transactions. 

However, there could be multiple errors—which are also known as bank reconciliation problems—in this process. This article will help you identify the top five most common bank reconciliation problems to avoid. 


In-transit checks and deposits can cause a gap for funds in a bank reconciliation process as the cash movement is not immediate. For example, when a cheque, online payment, ACH (Automated Clearing House) transfer, or cash deposit is received, the business has recorded this movement of money, but the funds haven’t arrived at the bank yet. This is particularly problematic in higher-volume accounts where the stream of cash flows into and out of an account is steady and simultaneous.

A business’s financial statement will not be balanced with its bank statement record if the time it takes for funds to pass through a bank spans a recording period (such as a daily closing or after month-end reporting). This time-lapse can be particularly noticeable when the reporting period coincides with a long public holiday when banks are closed. 

In this case, the way to avoid this problem is to make sure entries are booked to reconcile these accounts for the specified period.

Unpresented cheques

Unpresented cheques, also known as outstanding checks, are checks that have been made by a corporation but have not yet been paid by the bank on which they are drawn.

Bank reconciliation problems might arise when cheques are issued but not cashed or deposited in a timely manner. There is an easy way to avoid this problem: Booking an entry to carry this cheque balance over to the next month will reconcile accounting for the current reporting period while also allowing the company to keep track of check obligations.

Uncleared cheques that are never submitted for payment will also cause bank reconciliation problems. Once a standard timeframe in which the cheque should have been deposited (typically 90 days) has passed, the business needs to take extra steps to resolve the matter. In this case, reaching out to the payees to remind them to present the check for payment is an easy first step to resolve the problem. If a check never reaches the payee or a payee cannot be contacted, the original check should be canceled and a new check issued upon request.


Many bank reconciliation problems result from “typical” errors, such as:

  • Making an entry twice: This error produces a discrepancy equal to the amount of the entry in question.
  • Not accounting for a transaction: This error will also produce a discrepancy equal to the amount of the overlooked entry.
  • Making a mistake when entering a comma: This typo produces a discrepancy which can be easier to notice because the digits add up to 9. For example, if you enter $124.0 instead of $12.40, the discrepancy will be $111.60. (1 plus 1 plus 1 plus 6 is 9.)
  • Putting the numbers in the wrong order: This also results in a discrepancy which  can be easier to notice because the digits add up to 9. For example, if you enter $974 instead of $947, the difference is $27. 
  • Making a transaction by mistake: This is one of the most typical errors resulting from clicking the wrong button or misunderstanding the online bank apps’ features. 

Errors from the bank side also add to the most common bank reconciliation problems. For example, the bank records an incorrect amount, enters an amount that doesn’t belong on a company’s bank statement, or omits an amount from a company’s bank statement. 

In case the error is from the bank side, a journal entry or ledger adjustment is required to write it off. The bank will then correct the error, add a temporary adjustment on the Miscellaneous page until the bank adjustment appears on the following month’s statement. To save yourself from such cases, you should always keep a copy of the bank transaction receipt to double-check and notify the bank if any issues arise. 

Related article: What is a Bank Transaction Receipt and its Benefits for Your Business

Unaccounted fees

Unaccounted fees, like bank fees, overdraft fees, and NSF (non-sufficient funds) check fees, will cause discrepancies in a bank reconciliation if they are not included. Remember to include these fees after any cash movement for more efficient bank reconciliation. 

Ideally, these fees can be minimized naturally by using a smart cash flow management system with regular bank reconciliation procedures. Small businesses can consider selecting a bank that offers lower fees and stronger overdraft protection.

Unauthorized withdrawals

Fraud is a major issue that companies should strive to avoid. Whether they are made by an employee or by a third party who has maliciously breached the account, unauthorized withdrawals can bring a company to its knees.

Internally, a division of responsibilities can aid in the prevention of fraud. Employees who are in charge of reconciling accounts should not also be in charge of recording transactions or disbursing cash. Embezzlement might occur otherwise, and the proof of such actions could be easily disguised. For this reason, many business owners hire a third-party finance professional to perform unbiased bank reconciliations.

Externally, to avoid fraudulent transactions businesses can enable supplemental bank protections to bolster account security. The bank can automatically reject transactions that have not been pre-approved. However, these measures are not standard on most business banking accounts; some institutions offer them as a premium option or for chosen clientele.

The bottom line

Bank reconciliation is a necessary process for companies to undertake, but it can also be excessively tricky and tedious. However, by bearing in mind these kinds of errors and paying close attention to the amount in question, you can easily identify the source of the discrepancy. This will save a lot of time and headaches doing bank reconciliation. 

And don’t forget that there are various business automation tools available to automate this process (or part of it) to make it more efficient and more controllable! The Shoeboxed app is a tailored accounting app for freelancers, accountants, bookkeepers, and small business owners to simplify their accounting and bookkeeping processes. Shoeboxed helps users turn their paper receipts into digital, clearly categorized data

Additionally, Shoeboxed’s OCR (Optical Character Recognition) function and human-verification features ensure that your receipts are clearly scanned and well categorized. You can rest assured that your digital receipts are legibly accepted by both the Internal Revenue Service and the Canada Revenue Service in the event of an audit. Moreover, Shoexboxed proudly supports users with many other business tasks, such as managing expenses, storing business cards, tracking mileage, and so much more! 

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