How to Reconcile Your Bank Account — Step by Step Guide
Learn how to reconcile your bank account step by step — a practical guide for small business owners. Catch errors, prevent fraud & keep accurate books every month.
Bank reconciliation is one of those bookkeeping tasks that most small business owners know they should do — but either do not know how to start or find daunting enough to keep putting off.
It does not need to be either. Bank reconciliation is a straightforward process once you understand the steps — and with modern accounting software, most of the work is done automatically. What used to take hours now takes minutes.
This guide walks you through the complete bank reconciliation process — step by step, practically, with examples — so you can reconcile your accounts with confidence every month.
If you are not yet familiar with what bank reconciliation is and why it matters, start with our guide: What is Bank Reconciliation and Why Does It Matter?
What You Need Before You Start
Before you begin reconciling, gather everything you need:
Your bank statement — The official record from your bank for the period you are reconciling. Download it from your online banking portal as a PDF or CSV. If you use accounting software with a live bank feed, your transactions are already imported automatically.
Your accounting records — The transaction list in your bookkeeping system for the same period — every invoice payment received, every expense recorded, every bank transfer logged.
The opening balance — The balance at the start of the period. This should match between your bank statement and your accounting records. If you have reconciled previously, this will be the closing balance from your last reconciliation.
The closing balance — The balance at the end of the period on your bank statement. This is the target figure your accounting records need to match by the end of the reconciliation process.
With these four elements in place, you are ready to begin.
Step 01 — Confirm the Opening Balance
The first step in any bank reconciliation is confirming that your opening balance is correct — that the balance at the start of the period matches between your bank statement and your accounting records.
If you have reconciled before: Your opening balance should be the closing balance from your previous reconciliation. If your previous reconciliation was completed correctly and the period has been locked, the opening balance should match automatically.
If this is your first reconciliation: You need to set an opening balance in your accounting system that matches your bank statement balance on the date you are starting from. Choose a specific date — ideally the start of a month or financial year — find the closing balance on your bank statement for that date, and enter it as the opening balance in your accounting software.
If the opening balances do not match — and this is not your first reconciliation — there is an error from a previous period that needs to be investigated before you proceed. Reconciling forward on an incorrect opening balance compounds the problem.
Do not proceed until the opening balance agrees.
Step 02 — Import Your Bank Transactions
Your accounting records need to contain every transaction that appears on your bank statement for the period you are reconciling.
With bank feed integration: If your accounting software is connected to your bank via a live feed — which is the recommended approach — your transactions are imported automatically, typically daily. For the period you are reconciling, all transactions should already be in your accounting system without any manual effort.
With manual CSV import: If your software does not support a live bank feed for your specific bank, download your bank statement as a CSV file and import it into your accounting software. Most accounting platforms accept standard bank statement CSV formats.
With manual entry: For any transactions not captured by bank feed or CSV import — cash transactions, transactions from accounts without feed support — enter them manually before starting reconciliation.
The goal is to have every bank statement transaction visible in your accounting software before you begin matching.
Step 03 — Match Bank Transactions to Accounting Records
This is the core of the reconciliation process — going through your imported bank transactions and matching each one to the corresponding entry in your accounting records.
What matching means: For every transaction on your bank statement, there should be a corresponding entry in your accounting records. A client payment on your bank statement should match to an invoice payment in your accounting system. A software charge should match to a recorded expense. A bank fee should match to a bank charge entry in your books.
How matching works in accounting software: With accounting software like Accoru, matching is largely automated. The software compares imported bank transactions to your accounting entries — by amount, date, and description — and suggests matches automatically. You review the suggested matches and confirm them with one click. Transactions that cannot be matched automatically appear in an exceptions list for your attention.
How matching works manually: If you are reconciling manually — in a spreadsheet or on paper — go through your bank statement line by line and put a tick next to each transaction as you find the corresponding entry in your accounting records. Do the same on your accounting records side — tick off each entry as you find the corresponding bank transaction.
At the end, any unticked items on either side are the discrepancies you need to investigate.
Step 04 — Identify and Investigate Discrepancies
After matching, you will typically have a list of unmatched items — transactions that appear in one record but not the other, or transactions where the amounts do not agree. These are your discrepancies.
Every discrepancy needs to be investigated and resolved before reconciliation is complete. Here are the most common types and how to handle each one.
Discrepancy Type 01 — Transaction on Bank Statement Not in Your Books
A transaction appears on your bank statement but there is no corresponding entry in your accounting records.
Common causes:
- Bank fee or charge not yet recorded
- Interest received not yet recorded
- Direct debit payment not captured in recurring expenses
- A payment received that was not recorded as income
- A supplier payment that was not recorded as an expense
Resolution: Create the missing entry in your accounting records. For a bank fee, create an expense entry in the bank charges category. For interest received, create an income entry. For an unrecorded supplier payment, create an expense entry and record the payment against it.
Discrepancy Type 02 — Entry in Your Books Not on Bank Statement
A transaction appears in your accounting records but there is no corresponding transaction on your bank statement.
Common causes:
- A cheque written and recorded but not yet presented to the bank (outstanding cheque)
- A deposit recorded but not yet cleared (outstanding deposit)
- A transaction recorded on the wrong date
- A duplicate entry in your accounting records
- An entry created in error
Resolution:
- If it is a timing difference — a cheque not yet presented, a deposit not yet cleared — note it as outstanding. It should appear on the following month's bank statement.
- If it is a duplicate — compare the entry to your other records and delete the duplicate.
- If it is an error — investigate, correct, and note the reason.
Discrepancy Type 03 — Amount Mismatch
A transaction appears in both your bank statement and your accounting records — but the amounts are different.
Common causes:
- A data entry error (typed the wrong amount when recording the transaction)
- A bank fee deducted from a payment (you received $1,940 but expected $2,000 because the bank took a $60 fee)
- A partial payment recorded as a full payment
- Currency conversion at a different rate than expected
Resolution:
- For data entry errors — correct the amount in your accounting records and note the correction.
- For bank fees deducted from payments — record the fee as a separate expense entry and adjust the payment amount to match the net amount received.
- For partial payments — ensure the payment is recorded correctly as partial and the invoice balance reflects the outstanding amount.
Discrepancy Type 04 — Unrecognized Transaction
A transaction appears on your bank statement that you do not recognize — you cannot identify what it is for.
Common causes:
- A business expense paid by a team member and not yet reported
- A direct debit from a subscription you forgot about
- A payment from a client using a different account name
- A fraudulent or unauthorized transaction
Resolution:
- Check with team members who have access to the account
- Review your subscription and direct debit list for matching amounts
- Check your invoice records for clients whose payment might appear under an unexpected name
- If you cannot identify the transaction after investigation — contact your bank. If it appears to be unauthorized, report it immediately as potential fraud.
Step 05 — Handle Outstanding Items
Outstanding items are transactions that are in your accounting records but not yet on your bank statement — because they have not yet cleared the bank. The most common examples are:
Outstanding cheques — Cheques you have written and recorded as payments but that the recipient has not yet presented to the bank. They are in your books as payments but not on your bank statement.
Outstanding deposits — Payments received and recorded in your books but not yet cleared on your bank statement — typically because there is a processing delay.
Outstanding items are not errors. They are timing differences that will resolve naturally when the transaction eventually clears. The key is to track them explicitly so you know why your accounting balance and your bank balance differ by a specific amount — even though both are technically correct.
In most accounting software, outstanding items are tracked automatically — the reconciliation report shows the closing bank balance, adjusts for outstanding items, and shows the adjusted balance that should match your accounting records.
Outstanding cheque example:
Your accounting records show a closing balance of $8,500. Your bank statement shows a closing balance of $9,200. The difference is $700 — which corresponds to a cheque you wrote and recorded but that has not yet cleared. Your accounting balance ($8,500) is correct — it reflects the $700 payment. Your bank balance ($9,200) has not yet reflected the cheque. The reconciliation is correct — the outstanding cheque explains the difference.
Step 06 — Confirm the Closing Balance
Once all transactions are matched and all discrepancies resolved — including noting any outstanding items — your adjusted accounting balance should equal the closing balance on your bank statement.
The formula is:
Opening book balance + Receipts recorded in books for the period - Payments recorded in books for the period - Outstanding cheques (recorded in books, not yet on bank statement) + Outstanding deposits (recorded in books, not yet on bank statement) = Adjusted book balance
This should equal your bank statement closing balance.
If it does — your reconciliation is complete. ✓
If it does not — there is still a discrepancy that has not been identified and resolved. Go back through your unmatched items and investigate further.
Do not accept a reconciliation that does not balance. An unresolved difference is an error somewhere — and errors left unresolved compound over time.
Step 07 — Lock the Reconciled Period
Once your reconciliation is complete and the closing balances match, lock the reconciled period in your accounting software.
Locking prevents any changes to transactions within the reconciled period — so the reconciliation cannot be accidentally broken by future edits. If a correction needs to be made to a transaction in a locked period, it should be done through an adjusting entry in a subsequent period — not by editing the original transaction.
Locking reconciled periods is a critical step that many small business owners skip — and then wonder why their previously balanced reconciliation does not agree the next month. Lock every period when you complete it.
Step 08 — Save and File the Reconciliation Report
Generate the reconciliation report from your accounting software — showing the opening balance, all matched transactions, all outstanding items, and the closing balance — and save it.
The reconciliation report is your evidence that the reconciliation was performed — useful for your accountant at year end, for any audit, and as a reference if questions arise about the period later. Most accounting software generates this report automatically at the end of the reconciliation process.
A Practical Example — Monthly Reconciliation
Here is a complete example of a monthly bank reconciliation for a small consulting business.
Period: March Account: Main Business Current Account
Opening balance (1 March):
- Bank statement: $12,450.00
- Accounting records: $12,450.00 ✓ Match
Transactions during March:
| Bank Statement | Amount | Accounting Records | Match? |
|---|---|---|---|
| Client payment — Invoice 0142 | +$3,500 | Invoice 0142 payment recorded | ✓ |
| Client payment — Invoice 0138 | +$1,200 | Invoice 0138 payment recorded | ✓ |
| Software subscription — Canva | -$100 | Expense recorded | ✓ |
| Software subscription — Slack | -$85 | Expense recorded | ✓ |
| Office rent — 1 March | -$1,500 | Expense recorded | ✓ |
| Bank monthly fee | -$15 | Not in accounting records | ✗ |
| Transfer from client — ABC Ltd | +$2,200 | Not in accounting records | ✗ |
| Accounting software subscription | -$130 | Expense recorded | ✓ |
Discrepancies identified:
- Bank fee of $15 — not recorded in books → Create bank charges expense entry for $15
- Payment of $2,200 from ABC Ltd — not recorded in books → Investigate: matches Invoice 0145 sent in February — record as invoice payment
After resolving discrepancies:
Closing balance (31 March):
- Bank statement: $17,520.00
- Accounting records: $17,520.00 ✓ Match
Reconciliation complete.
How Long Should Bank Reconciliation Take?
With accounting software and a live bank feed, monthly reconciliation for a typical small business should take:
10–20 minutes for a business with 50–100 transactions per month 20–45 minutes for a business with 100–300 transactions per month Under 10 minutes for a very small business with fewer than 50 transactions
The first reconciliation — particularly if you have not reconciled before — takes longer because you need to set up the opening balance and work through any accumulated discrepancies. Once you are reconciling regularly, it becomes a quick, routine task.
If reconciliation is consistently taking several hours, it is typically a sign that transactions are not being recorded in real time — expenses are being logged in batches, invoices are not being recorded when sent, or the accounting records are significantly behind. Catching up on recording is a separate task from reconciliation — do both, but do not let delayed recording make reconciliation harder than it needs to be.
Tips for Making Reconciliation Easier
Reconcile more frequently — The shorter the period between reconciliations, the fewer transactions to work through and the easier it is to remember what each unmatched transaction relates to. Weekly reconciliation is faster per session than monthly, even though it is more frequent.
Record transactions as they happen — The fewer gaps between transactions occurring and being recorded, the fewer unmatched items in your reconciliation. Record expenses as they are incurred and invoice payments as they are received.
Set up recurring expenses — Bank fees, subscription charges, rent, and other regular payments that appear on your bank statement every month should be set up as recurring expenses in your accounting software — so they are automatically recorded before you even start reconciliation.
Use a live bank feed — Connecting your accounting software directly to your bank via a live feed imports transactions automatically — eliminating the need to manually download and import bank statements and ensuring your transaction list is always current.
Investigate exceptions promptly — Do not leave unmatched transactions unresolved for later. Investigate them during the reconciliation session while the period is fresh. Unresolved exceptions that roll forward into the next period are harder to investigate and create confusion.
Lock completed reconciliations — Always lock the reconciled period when you complete it. This prevents accidental changes that would break the reconciliation and ensures your historical records remain accurate.
Reconciling Multiple Accounts
If your business has more than one bank account — and most businesses do — each account needs to be reconciled separately.
The process is identical for each account:
- Main business current account — reconcile against the current account statement
- Business savings account — reconcile against the savings account statement
- Business credit card — reconcile against the credit card statement
- PayPal business account — reconcile against the PayPal transaction history
- Stripe account — reconcile against the Stripe payout history
Each account has its own statement, its own transaction history, and its own potential discrepancies. Treating each one as a separate reconciliation task — with its own opening balance, transaction list, and closing balance — keeps the process clean and manageable.
Accoru's bank reconciliation supports multiple accounts — each with its own reconciliation dashboard, transaction feed, and status indicator — so you can see at a glance which accounts are reconciled and which need attention.
Summary — The Eight Steps
Bank reconciliation is a straightforward process when approached systematically:
Step 01 — Confirm the opening balance matches between your bank statement and accounting records Step 02 — Import your bank transactions (automatically via feed, or manually via CSV) Step 03 — Match bank transactions to accounting records Step 04 — Investigate and resolve every discrepancy Step 05 — Note and track outstanding items (timing differences) Step 06 — Confirm the closing balance matches Step 07 — Lock the reconciled period Step 08 — Save the reconciliation report
Done monthly, consistently, with good accounting software — bank reconciliation is a 20-minute task that keeps your books accurate, catches errors early, and gives you financial records you can trust.
Frequently Asked Questions
Q: What if my bank reconciliation never balances? A: If you consistently cannot get your reconciliation to balance, the most common causes are an incorrect opening balance, duplicate entries in your accounting records, transactions recorded in the wrong period, or a data entry error from a previous period. Work backwards — start from the last period that balanced correctly and reconcile forward from there, identifying where the discrepancy first appeared.
Q: Can I reconcile without accounting software? A: Yes — you can reconcile manually using a spreadsheet or even pen and paper. The process is the same — compare your accounting records to your bank statement, match transactions, and resolve discrepancies. Manual reconciliation is significantly more time-consuming than software-assisted reconciliation and more prone to human error — but it works.
Q: What do I do with transactions I cannot identify? A: For unidentified transactions — particularly on your bank statement — check with anyone who has access to the account, review your subscription and direct debit list, check client payment records for matching amounts, and contact your bank if needed. If a transaction appears fraudulent or unauthorized, report it to your bank immediately. Never leave unidentified transactions unresolved in your reconciliation.
Q: Do I need to reconcile if I use accounting software with bank feed? A: Yes. Bank feed integration automates the transaction import and much of the matching — but it does not replace the reconciliation process. You still need to confirm that all transactions are matched, investigate exceptions, and verify that your closing balance matches your bank statement. The software makes reconciliation faster and easier — it does not make it unnecessary.
Q: What is the difference between reconciled and unreconciled transactions? A: A reconciled transaction is one that has been matched between your accounting records and your bank statement — confirmed as appearing in both records with the same amount. An unreconciled transaction is one that has been imported from your bank feed or entered manually but not yet matched to a corresponding accounting entry. Unreconciled transactions are the items that need your attention during the reconciliation process.
Q: How far back can I reconcile? A: You can reconcile as far back as you have bank statements and accounting records — there is no time limit on how historical a reconciliation can be. Starting from a very old date is more complex because you need to work through potentially years of accumulated discrepancies. For a first reconciliation, choose a start date that is as recent as possible — ideally the start of the current financial year — and work forward from there.
Accoru's bank reconciliation tools make monthly reconciliation straightforward — automatic transaction import, smart matching, and a clear exceptions list mean most reconciliations take under 20 minutes.