Bank reconciliation is one of the most important practical skills a new bookkeeper can learn. It helps you confirm that the transactions recorded in your accounting system match the activity shown on the business bank statement.
At first, reconciling bank statements can look complicated. You may see deposits that have not reached the bank yet, cheques that have not cleared, bank charges that were never entered in the books, or transactions recorded with the wrong amount. Once you understand the process, however, it becomes a logical step-by-step task.
For Canadian bookkeeping students and junior accounting professionals, knowing how to perform a bank reconciliation is especially useful because it connects several everyday accounting skills. You work with the general ledger, cash account, deposits, payments, bank statements and supporting documents at the same time.
This guide explains what bank reconciliation is, why it matters, how to do bank reconciliation step by step, what a bank reconciliation statement looks like, and how to deal with common differences.
What Is Bank Reconciliation?
Bank reconciliation is the process of comparing the cash transactions recorded in a company’s accounting records with the transactions appearing on its bank statement.
The objective is simple: determine why the two balances are different and make sure the accounting records are complete and accurate.
For example, imagine that your accounting software shows a bank balance of $12,400, while the bank statement shows $11,950.
That does not automatically mean that something is wrong.
The difference could be caused by:
- An outstanding cheque
- A deposit in transit
- Monthly bank charges
- Interest received
- A payment recorded twice
- A transaction entered for the wrong amount
- A bank transaction not yet entered into the accounting system
The bookkeeper investigates these differences until the adjusted accounting balance and adjusted bank balance agree.
This is why bank reconciliation is more than simply comparing two numbers. It requires understanding how transactions move between a company’s books and its bank account.
Students who are learning the broader bookkeeping cycle can also read our guide to full-cycle bookkeeping in Canada to see where reconciliation fits into the complete accounting process.
Why Is Bank Reconciliation Important?
A business may record dozens or hundreds of transactions during a month. Even with good accounting software, errors can happen.
A regular bank reconciliation provides an additional control that helps identify those problems before they affect financial reports.
It helps identify missing transactions
A bank may charge:
- Monthly account fees
- Wire transfer charges
- Credit card processing fees
- NSF charges
- Interest
- Other service fees
If these amounts appear on the bank statement but have not been entered into the accounting system, the book balance will be incorrect.
It helps detect recording errors
A payment of $950 could accidentally be entered as $590.
A transaction could also be:
- Entered twice
- Posted to the wrong bank account
- Entered using the wrong date
- Completely missed
Reconciling the account helps uncover these differences.
It improves the reliability of financial reports
Cash is an important figure on the balance sheet. If the cash account is incorrect, financial statements may also be inaccurate.
A properly reconciled bank account gives the accountant or bookkeeper more confidence that the recorded cash balance is reasonable.
It improves record keeping
Canadian businesses need reliable financial records and supporting documents. The Canada Revenue Agency identifies items such as bank statements, deposit slips, journals and financial statements as business records, and specifically lists bank reconciliation statements among common financial records.
For someone preparing for a practical bookkeeping role, this makes reconciliation an important workplace skill rather than just an accounting-school exercise.
What Is a Bank Reconciliation Statement?
A bank reconciliation statement is a document showing how the balance according to the bank statement is reconciled with the balance recorded in the accounting books.
A simple bank reconciliation format may look like this:
| Bank Reconciliation | Amount |
|---|---|
| Balance per bank statement | $10,000 |
| Add: Deposits in transit | $1,500 |
| Less: Outstanding cheques | ($800) |
| Adjusted bank balance | $10,700 |
| Balance per accounting records | $10,820 |
| Less: Bank service charge | ($120) |
| Adjusted book balance | $10,700 |
After all valid adjustments are considered, both sides equal $10,700.
That matching adjusted balance is the main objective of the reconciliation.
A good bank reconciliation statement should also make it easy for another person to understand:
- What caused each difference
- Which transactions are still outstanding
- Which entries need to be recorded
- Who prepared the reconciliation
- Which accounting period it covers
In a workplace, clear documentation matters because the reconciliation may later be reviewed by a supervisor, accountant or auditor.
What Do You Need Before Starting a Bank Reconciliation?
Before learning how to do bank reconciliation, gather all the information you need.
Usually this includes:
- Bank statement for the period
- Cash or bank ledger
- Accounting software records
- Deposit records
- Cheque or payment information
- Electronic transfer records
- Previous bank reconciliation
- Supporting invoices or receipts when necessary
The previous reconciliation can be particularly helpful because it shows transactions that were outstanding at the end of the previous period.
For example, a cheque issued on March 30 may not have cleared until April 3. When completing April’s reconciliation, you should know that it originated in the previous accounting period.
Good organization makes the process much easier.
7 Bank Reconciliation Steps for Accurate Books
Step 1: Compare the Opening Balances
Begin with the opening balance.
Compare the beginning balance on the current bank statement with the ending balance on the previous statement.
You should also review the previous month’s completed reconciliation.
If the previous month was reconciled correctly, you have a reliable starting point.
A problem with the opening balance should be investigated before moving forward because continuing with an incorrect opening balance can make the entire reconciliation confusing.
Step 2: Match Deposits
Next, compare deposits recorded in the accounting system with deposits appearing on the bank statement.
You may find that most transactions match immediately.
Mark or clear each matching deposit.
Then investigate anything that remains unmatched.
One common difference is a deposit in transit.
Suppose a business receives and records a customer payment of $2,000 on August 31. The money may not appear on the bank statement until September 1.
The business has correctly recorded the deposit, but the bank has not processed it by the statement date.
You generally do not remove the legitimate transaction from the books simply because the bank has not processed it yet. Instead, it becomes a reconciling item.
Understanding customer payments is also closely related to accounts receivable. GTGH’s guide to accounts payable vs accounts receivable explains the difference between money a business owes and money customers owe the business.
Step 3: Match Cheques, Payments and Withdrawals
Now compare payments recorded in the books with withdrawals shown on the bank statement.
These may include:
- Cheques
- Electronic funds transfers
- Debit card payments
- Pre-authorized payments
- Supplier payments
- Payroll withdrawals
Again, mark the items that match.
A common reconciling item at this stage is an outstanding cheque.
For example, a business may issue a $750 cheque to a supplier on August 28 and immediately record the payment.
If the supplier does not deposit the cheque until September, the payment will appear in the accounting records but not on the August bank statement.
The cheque remains outstanding until it clears.
Step 4: Record Bank-Only Transactions
Some transactions appear first on the bank statement because the business has not yet entered them into the accounting system.
Examples can include:
- Bank charges
- Interest earned
- NSF fees
- Automatic withdrawals
- Direct deposits
- Electronic charges
These transactions usually require entries in the accounting records.
For example:
Monthly bank fee: $25
A simplified journal entry could be:
| Account | Debit | Credit |
|---|---|---|
| Bank Charges Expense | $25 | |
| Bank | $25 |
The entry reduces the accounting bank balance by $25.
This is an important distinction:
Timing differences such as outstanding cheques usually do not require correcting the original transaction.
Unrecorded transactions such as bank fees usually require the books to be updated.
Step 5: Investigate Errors and Unusual Differences
If transactions still do not match, investigate them carefully.
Suppose the bank statement shows a payment of $840, but the accounting software shows $480.
The $360 difference could indicate a data-entry error.
Other possible errors include:
- Duplicate transactions
- Transposed numbers
- Incorrect dates
- Wrong bank account selected
- Incorrect opening balance
- Deleted transactions
- Payments posted as deposits
- Deposits posted as expenses
Do not simply create an adjustment to force the reconciliation to balance.
The goal is to understand the difference.
A unexplained adjustment may make the current month appear correct while creating a larger accounting problem later.
Step 6: Calculate the Adjusted Balances
After identifying all differences, calculate the adjusted bank balance and adjusted book balance.
A simplified formula is:
**Bank statement balance
- Deposits in transit
− Outstanding payments
± Bank errors
= Adjusted bank balance**
Then review the accounting records:
**Book balance
- Unrecorded income or interest
− Bank fees and other unrecorded expenses
± Book errors
= Adjusted book balance**
When the reconciliation is complete:
Adjusted Bank Balance = Adjusted Book Balance
If they still do not agree, continue investigating.
Step 7: Complete and Review the Reconciliation
Once both balances agree, save the completed reconciliation with the supporting documentation.
The final file may contain:
- Bank statement
- Bank reconciliation statement
- List of outstanding cheques
- Deposit-in-transit details
- Journal entries
- Notes explaining unusual items
Then review the work.
Ask:
- Do the adjusted balances match?
- Were all bank charges recorded?
- Are old outstanding transactions still appearing?
- Are there unusual transactions that require investigation?
- Are supporting documents available?
- Were adjusting entries posted correctly?
This final review is especially important when managing multiple client files.
Bank Reconciliation Example
Consider a simple bank reconciliation example.
At August 31:
Bank statement balance: $18,250
Book balance: $18,540
During the reconciliation, the bookkeeper finds:
- Deposit in transit: $1,200
- Outstanding cheque: $750
- Bank service fee not recorded: $40
- Interest earned not recorded: $20
- A $240 cheque was accidentally recorded as $420
Adjust the bank side
Bank statement balance: $18,250
Add deposit in transit: +$1,200
Less outstanding cheque: −$750
Adjusted bank balance:
$18,700
Adjust the book side
Book balance: $18,540
Less bank fee: −$40
Add interest: +$20
Correct cheque recording error: +$180
Adjusted book balance:
$18,700
Both adjusted balances now agree.
This sample bank reconciliation shows why simply comparing the original bank balance and book balance is not enough. The bookkeeper has to identify the reason behind every legitimate difference.
Common Reasons a Bank Reconciliation Does Not Balance
When a reconciliation refuses to balance, do not panic. Start with the most common causes.
Outstanding cheques
A payment has been entered in the books but has not yet cleared the bank.
Deposits in transit
A deposit has been recorded by the business but has not yet appeared on the bank statement.
Bank charges
The bank deducted an amount that has not yet been recorded in the accounting system.
Interest
The bank added interest that has not yet been entered in the books.
Duplicate entries
The same transaction was entered twice.
Incorrect transaction amount
A $1,250 transaction may have been entered as $1,520.
Missing transactions
A payment or receipt appearing on the bank statement was never entered in the books.
Incorrect dates
A transaction may have been recorded in the wrong accounting period.
Old outstanding items
An outstanding cheque that remains uncleared for several months should be investigated rather than carried forward forever.
Learning how to investigate these differences develops the type of problem-solving ability required in practical bookkeeping.
Bank Reconciliation vs Account Reconciliation
Account reconciliation is the broader accounting process of comparing records from different sources to make sure an account is accurate.
Bank reconciliation is one type of account reconciliation.
Other accounts that may require reconciliation include:
- Accounts receivable
- Accounts payable
- Credit cards
- Payroll liabilities
- GST/HST accounts
- Intercompany accounts
- Loan balances
So:
Account reconciliation = broad category
Bank reconciliation = reconciliation specifically involving a bank account
Understanding this distinction helps accounting beginners see how bank reconciliation fits into the larger month-end and financial reporting process.
If you are still learning how bookkeeping and accounting responsibilities differ, see Bookkeeping vs Accounting in Canada.
How Often Should You Perform Bank Reconciliation?
For many businesses, monthly bank reconciliation is a practical minimum because bank statements are commonly reviewed by accounting period.
However, businesses with high transaction volumes may reconcile more frequently.
Depending on the organization, reconciliation may be performed:
- Daily
- Weekly
- Monthly
- At another reporting interval
Frequent reconciliation can make problems easier to identify because there are fewer transactions to investigate at one time.
Waiting several months creates a larger list of:
- Payments
- Deposits
- Bank fees
- Transfers
- Corrections
- Outstanding transactions
That makes errors more difficult to trace.
The appropriate frequency depends on the business, transaction volume and accounting controls in place.
Bank Reconciliation in QuickBooks and Accounting Software
Modern accounting software can make reconciliation faster, but the software does not remove the need to understand the accounting behind it.
A typical software-based reconciliation involves:
- Selecting the correct bank account
- Entering the statement ending date
- Entering the ending bank balance
- Matching cleared deposits
- Matching cleared payments
- Investigating unmatched transactions
- Reviewing the remaining difference
- Completing the reconciliation after the difference reaches zero
Bank feeds can also import transactions automatically.
However, automation can create new problems when users accept transactions without reviewing them.
For example, imported transactions can potentially be:
- Duplicated
- Matched incorrectly
- Assigned to the wrong account
- Categorized incorrectly
The software is a tool. The bookkeeper still needs to understand why the records match.
Students interested in accounting technology can also read our guide to the best accounting software in Canada.
Common Bank Reconciliation Mistakes to Avoid
1. Forcing the reconciliation to zero
Never create a random adjustment simply to make the difference disappear.
Find the cause first.
2. Ignoring old outstanding cheques
An old cheque may need investigation. Do not continue carrying unusual outstanding items without review.
3. Recording deposits twice
This can happen when a bank-feed transaction is added even though the deposit was already entered manually.
4. Reconciling the wrong period
Always check the statement ending date before beginning.
5. Ignoring small differences
A $5 difference may seem unimportant, but it can indicate a larger process problem.
6. Deleting reconciled transactions
Editing or deleting transactions from a previously reconciled period can affect later reconciliations.
7. Failing to keep documentation
Keep enough support to explain how the reconciliation was completed.
The CRA says business records should be reliable, complete and supported by documents, and electronic records need to remain accessible and readable when required.
Why Bank Reconciliation Is an Important Skill for Bookkeepers
Bank reconciliation brings several bookkeeping skills together.
To complete the process properly, a bookkeeper needs to understand:
- Cash transactions
- General ledger accounts
- Journal entries
- Deposits
- Supplier payments
- Customer receipts
- Accounting software
- Supporting documents
- Error investigation
- Financial reporting
That makes reconciliation a useful practical exercise for accounting beginners.
It also teaches an important workplace habit: do not assume the accounting records are correct simply because transactions were entered into software.
A good bookkeeper reviews, verifies and explains the numbers.
If you want hands-on experience with bookkeeping processes such as bank reconciliation, accounts payable, accounts receivable, financial statements and accounting software, explore GTGH’s practical in-person bookkeeping course.
Those considering bookkeeping as a career can also read How to Become a Bookkeeper in Ontario for a broader look at the skills and career path.
Frequently Asked Questions About Bank Reconciliation
What is bank reconciliation in simple words?
Bank reconciliation means comparing the transactions in your accounting records with your bank statement. You identify deposits, payments, fees and other differences until the adjusted bank balance matches the adjusted accounting balance.
How do you do a bank reconciliation?
To complete a bank reconciliation, compare the bank statement with your accounting records, match deposits and payments, identify outstanding transactions, enter bank-only items, correct errors and calculate the adjusted balances. The reconciliation is complete when the adjusted balances agree.
What is a bank reconciliation statement?
A bank reconciliation statement is a document explaining the difference between the balance shown by the bank and the balance shown in the accounting records. It typically lists items such as deposits in transit, outstanding cheques, bank charges and corrections.
What are the most common bank reconciliation differences?
Common differences include outstanding cheques, deposits in transit, bank fees, interest income, automatic payments, missing transactions, duplicated entries and incorrect transaction amounts.
What is the difference between bank reconciliation and a bank statement?
A bank statement is produced by the financial institution and shows transactions processed through the bank account. A bank reconciliation is prepared by the business or bookkeeper to compare that statement with the company’s accounting records.
Can accounting software do bank reconciliation automatically?
Accounting software can automate parts of the process, such as importing and matching transactions. However, a bookkeeper still needs to review unmatched items, investigate errors and confirm that the reconciliation is accurate.
Final Thoughts
Bank reconciliation may look like a simple comparison between a bank statement and accounting records, but it is actually an important financial control.
A proper reconciliation helps identify missing entries, outstanding transactions, bank charges, duplicate entries and recording errors before those problems flow into financial reports.
For accounting beginners, the best way to understand the process is through practice. Work through a bank reconciliation example, learn how outstanding cheques and deposits in transit work, understand the journal entries required for bank-side transactions, and practise investigating differences rather than simply trying to make the numbers match.
These skills become even more valuable when combined with accounts payable, accounts receivable, full-cycle bookkeeping and accounting software experience.
Ready to build practical bookkeeping skills using real accounting workflows? Explore the Get Trained Get Hired Bookkeeping Course and learn how bookkeeping tasks are handled in a practical Canadian accounting environment.
