How to reconcile a bank account
Match the statement to the books until both sides tell the same cash balance.
Why the bank and the books disagree
The bank does not know about a check you wrote yesterday that nobody has cashed. Your books do not know about a fee the bank posted last night. Reconciliation is the list of those differences. When it is finished, the adjusted bank balance equals the adjusted book balance. That number is the cash you should trust for runway and for the cash line on the balance sheet.
Do it in this order
- Start from the statement. Write down the statement ending date and the ending balance. Use that statement, not a mid-day online balance, so you can finish.
- Confirm the opening balance. The statement’s beginning balance should equal last month’s reconciled balance. If it does not, fix last month before you touch this one.
- Tick deposits. Every deposit on the statement needs a matching receipt in the books for the same amount. A batched deposit matches the batch total, not each invoice inside it.
- Tick withdrawals. Checks, ACH, and card payments on the statement need a matching book entry. A payment that cleared for a different amount than you recorded is an error to fix, not a plug.
- List timing differences. Checks and payments you recorded that have not cleared are outstanding. Deposits you recorded that the bank has not posted are in transit. They stay on the bank side of the reconciliation.
- Record bank-only items. Interest, fees, and a returned customer payment belong in the books. Interest is income. A fee is an expense. A returned payment puts the receivable back.
- Compare the adjusted totals. Statement balance minus outstanding payments plus deposits in transit equals the book balance after you posted fees and interest. If it does not, the difference is a specific missing item, not a rounding plug to “miscellaneous.”
A small example
Statement balance $4,200. You wrote a $300 check that has not cleared, and you deposited $500 this morning that is not on the statement. Adjusted bank balance: $4,200 − $300 + $500 = $4,400. The books showed $4,425 before you noticed a $25 service fee. After you record the fee, the books show $4,400. They match. The $25 is bank-fee expense, which belongs in an expense account, not in owner’s draw, unless you personally caused an overdraft you are choosing to treat that way — and even then, write it down.
Credit cards and clearing accounts
A credit card is the same exercise with the signs flipped: the statement is a liability. Transfers between checking and a savings account should net to zero across both reconciliations. Sales tax you collected should not be “reconciled away” into income. It stays in the liability until you remit it, which is the point of the sales tax guide.
Put the finished reconciliation on the month-end checklist. If you skip a month, the next one has to solve two months of silence.