Learn It
A bank reconciliation compares the bank statement to the book register for the same period. The goal is to prove that the two balances are either the same or differ for a known, legitimate reason.
Here is the key idea that many new bookkeepers miss: reconciliation is not making the books equal the bank. It is proving why the two balances differ and confirming that the difference is legitimate.
The bank balance and the book balance will often be different at the end of the month. That is normal. The bookkeeper's job is to list every reason they differ and show that the adjusted balances match.
As we saw in the Banking Transactions lesson, money moves through the bank for many reasons. The reconciliation confirms that each of those movements was recorded correctly.
Why Balances Differ
There are several common reasons the bank balance and book balance do not match at month-end. None of them automatically means someone made a mistake.
Outstanding Checks
The business wrote a check and recorded it in the books. The book balance went down. But the recipient has not cashed the check yet, so the bank has not paid it. The bank balance is still higher. This is a timing difference, not an error.
Deposits in Transit
The business deposited money and recorded it in the books. The book balance went up. But the bank has not processed the deposit yet, so it does not appear on the statement. Again, a timing difference.
Bank Fees and Interest
The bank charged a monthly fee or paid interest. These appear on the bank statement, but the bookkeeper has not recorded them yet. These are bank-only transactions that need to be added to the books.
Errors
Sometimes a transaction was recorded for the wrong amount, a check was entered twice, or a deposit was missed entirely. These are real errors that the reconciliation is designed to catch.
The Reconciliation Process
A reconciliation follows a simple structure. You start with two balances and adjust each one until they match.
| Step | What You Do |
|---|---|
| 1. Compare | Match each transaction on the bank statement to the same transaction in the books. Mark the ones that appear on both as cleared. |
| 2. Bank side | Start with the statement ending balance. Add deposits in transit. Subtract outstanding checks. This gives the adjusted bank balance. |
| 3. Book side | Start with the book ending balance. Add interest earned. Subtract bank fees. This gives the adjusted book balance. |
| 4. Confirm | If the adjusted bank balance equals the adjusted book balance, the reconciliation is complete. |
If the two adjusted balances do not match, there is still a difference to find. The bookkeeper investigates — looking for a missing transaction, a wrong amount, a duplicate entry, or a beginning balance error. Forcing a reconciliation to balance by plugging a number is dangerous. It hides the real problem instead of solving it.
See It
Let's look at a simplified example. A business has a statement ending balance of $8,131 and a book ending balance of $8,610. The difference is $479. Is that a problem?
The bookkeeper compares the two lists and finds:
- • A check for $475 was written and recorded in the books, but it has not cleared the bank yet. (Outstanding check.)
- • A deposit of $950 was recorded in the books, but it is not on the bank statement yet. (Deposit in transit.)
- • A $12 bank fee is on the statement but not in the books. (Bank-only activity.)
- • An $8 interest credit is on the statement but not in the books. (Bank-only activity.)
| Bank Side | Amount | Book Side | Amount |
|---|---|---|---|
| Statement ending balance | $8,131 | Book ending balance | $8,610 |
| + Deposit in transit | +950 | + Interest credit | +8 |
| − Outstanding check | −475 | − Bank fee | −12 |
| Adjusted bank balance | $8,606 | Adjusted book balance | $8,606 |
The adjusted bank balance equals the adjusted book balance at $8,606. The reconciliation is complete. The $479 difference was fully explained by one outstanding check, one deposit in transit, one bank fee, and one interest credit — all legitimate items.
Do It
Complete the bank reconciliation below. Compare the bank statement to the book register, mark cleared transactions, identify the differences, and calculate the adjusted balances.
Do It — Complete the Bank Reconciliation
Below are the bank statement and the book register for March. Your job is to:
- Compare the two lists and mark which transactions cleared (appear on both).
- Enter the outstanding check and deposit in transit amounts.
- Enter the bank fee and interest credit missing from the books.
- Calculate the adjusted bank balance and adjusted book balance.
Bank Statement — March
Statement ending balance: $8,131
| Mar 3 | Deposit — customer payment | +$1,500 | |
| Mar 8 | Check #1042 — rent | −$800 | |
| Mar 15 | ACH deposit — customer payment | +$2,200 | |
| Mar 18 | Debit card — office supplies | −$145 | |
| Mar 22 | Check #1043 — utility bill | −$320 | |
| Mar 28 | Monthly service fee | −$12 | |
| Mar 30 | Interest credit | +$8 |
Book Register — March
Book ending balance: $8,610
| Mar 3 | Deposit — customer payment | +$1,500 | |
| Mar 8 | Check #1042 — rent | −$800 | |
| Mar 15 | ACH deposit — customer payment | +$2,200 | |
| Mar 18 | Debit card — office supplies | −$145 | |
| Mar 22 | Check #1043 — utility bill | −$320 | |
| Mar 25 | Check #1044 — equipment repair | −$475 | |
| Mar 27 | Deposit — customer payment | +$950 |
Mark each transaction as cleared if it appears on both the bank statement and the book register. Items that appear on only one side are your reconciliation differences.
Adjust the Bank Balance
Adjust the Book Balance
Prove It
Answer each question, then read the explanation. There's no score — this is just to help the ideas stick.
Question 1
What is the purpose of a bank reconciliation?
Question 2
A check written for $420 has not yet cleared the bank. How is it treated in the reconciliation?
Question 3
The bank charged a $12 monthly fee that does not appear in the books. What should the bookkeeper do?
Ready for more than a short exercise?
This exercise gives you a small set of transactions with the differences clearly labeled. Real bookkeeping requires you to find the issue among dozens or hundreds of transactions, bank records, and supporting documents — without anything labeled for you. QBO Dojo practice clients let you apply reconciliation skills across realistic business activity inside QuickBooks Online.
Explore QBO Dojo Practice ClientsKey Takeaways
- Bank reconciliation proves why the book balance and bank balance differ — it does not force them to match.
- Outstanding checks are subtracted from the bank balance because the bank has not paid them yet.
- Deposits in transit are added to the bank balance because the bank has not recorded them yet.
- Bank fees and interest are bank-only activity that must be recorded in the books.
- If adjusted balances do not match, the bookkeeper investigates — never plugs a number to force a balance.
- A clean reconciliation confirms that every dollar in the bank is accounted for in the books.