Here’s the short version: bank reconciliation means matching your accounting records to the bank’s records for the same period, explaining every difference, recording any bank-only items in your books, and saving a report that proves your adjusted balances agree. Do this every month at a minimum. Weekly or even daily is better if you have lots of transactions.

What is bank reconciliation?

Bank reconciliation is the process of comparing the ending balance in your accounting system’s cash account to the ending balance on your bank statement for the same date range, then:

1. ticking off all matching deposits and payments
2. identifying timing differences like deposits in transit and outstanding checks
3. recording bank-only items in your books such as bank fees, interest, and returned items
4. confirming your adjusted book balance equals the adjusted bank balance and saving the report

How often should a small business reconcile?

Monthly at minimum. If you process a lot of payments, reconcile weekly. If cash is tight, reconcile daily using bank feeds so you always know what’s cleared.

What you need before you start

• The bank statement for the period you’re reconciling
• Your general ledger cash account for the same period
• Access to sales deposits and payout reports if you use Stripe, PayPal, Square, or a POS
• Check register or payment journal
• Prior month’s reconciliation report (so you can carry forward any outstanding items)

Step-by-step bank reconciliation

Step 1: Pin down the period and opening balance

Pick the statement period exactly as the bank shows it. Confirm your book opening balance matches last period’s reconciled ending balance. If it doesn’t, find out what changed since the last close before moving on.

Step 2: Match deposits first

Go down the bank statement and tick each deposit that appears in your books for the same amount and near the same date. Investigate any deposit on the statement that you can’t find in your books, common causes are missed sales, batch deposits, or posting to the wrong bank account.

Deposits in transit: Any deposit recorded in your books that hasn’t cleared the bank by statement ends becomes a “deposit in transit.” You’ll list these on the reconciliation.

Step 3: Match payments and checks

Tick off each withdrawal, check, ACH, debit card payment, and bank transfer that also appears in your books.

Outstanding checks: Any check or payment recorded in your books that hasn’t cleared the bank by the statement date is “outstanding.” List these on the reconciliation.

Step 4: Record bank-only items in your books

Some items exist only on the bank side until you record them:

• Bank service charges and monthly fees
• Interest income
• NSF or returned checks
• Merchant processor fees netted from deposits
• Automatic loan payments drafted by the bank
• Wire fees and foreign exchange differences

Post these as journal entries in your books with clear descriptions. Then they will match the statement.

Step 5: Investigate unmatched transactions

If something appears on the bank but not in your books, or vice versa, dig in:

• Duplicate entries in your books
• Wrong dates or amounts entered
• Posting to the wrong bank account or expense category
• Batch deposits from Stripe or Square not broken out properly
• Old checks that should be voided and re-issued

Fix these before you finalize.

Step 6: Prove the adjusted balances match

Use this simple formula:

Adjusted bank balance = Bank statement ending balance
− Outstanding checks

• Deposits in transit

Adjusted book balance = Book ending balance
± Journal entries for bank-only items
± Error corrections

Both adjusted balances must be equal. If not, you still have an unresolved difference.

Step 7: Lock it in and save your report

Save or export the reconciliation report with the list of outstanding items and copies of the bank statement. Attach supporting documents for any manual journal entries you posted. Lock the period to prevent accidental changes.

Worked example with numbers

Let’s say your bank statement shows an ending balance of $25,940 on June 30.

On the bank side:

• Outstanding checks not yet cleared: check #210 for $1,200 and ACH bill pay $380 → total $1,580
• Deposits in transit recorded June 30 that cleared July 1: $3,200

Adjusted bank balance = $25,940 − $1,580 + $3,200 = $27,560

On the book side (your general ledger shows $27,230):

• You haven’t recorded the bank service fee of $30
• You also haven’t recorded interest income of $360

Adjusted book balance = $27,230 − $30 + $360 = $27,560

They match. Save the report with the list of outstanding items and the journal entries for the fee and interest.

Handling payment processors the right way

If you use Stripe, Square, Shopify, or PayPal, the amount landing in your bank account is net of fees and refunds. Reconcile like this:

• Record gross sales and fees separately in your books
• Use a clearing account or undeposited funds account to hold daily sales until the payout lands
• Match the net payout from the processor to the bank deposit
• Tie out chargebacks and refunds to the exact payout period

This approach makes your reconciliation clean and your margins accurate.

Common issues and quick fixes

Problem: Deposits don’t match because the bank shows one lump sum.

Fix: Use your processor’s payout report to group individual sales into the single bank deposit amount.

Problem: Old outstanding checks never clear.

Fix: After a reasonable period, void and re-issue or credit the vendor. Keep a documented policy.

Problem: Unexplained difference of a few dollars.

Fix: Look for bank fees, foreign exchange adjustments, or a small transposition error. Search by amount ending.

Problem: Bank feed duplicates or skips transactions.

Fix: Never auto-accept bank feed entries without review. Compare the count and totals to the paper statement.

Problem: Reconciliation throws off prior month balances.

Fix: Lock closed periods. If something must change, document it and re-reconcile the affected month.

Problem: Sales recorded but no matching deposit.

Fix: Check undeposited funds or the clearing account. Many POS systems park sales there until you create the bank deposit.

Internal controls that make reconciliation reliable

• Separation of duties: One person prepares the reconciliation; another reviews and signs off.
• Numbered check stock and positive pay: Reduce fraud and errors in outgoing payments.
• Monthly close checklist: Bank rec, credit card rec, loan schedules, and AR/AP aging each month.
• Attachment policy: Attach the statement and supporting docs to the reconciliation report.
• Lock periods: Close the prior month once approved.

How to reconcile in QuickBooks Online and Xero

QuickBooks Online:

1. Accounting → Reconcile → Choose the bank account
2. Enter the statement ending balance and date
3. Tick off matching deposits and payments
4. Add bank-only items with “Reconcile” adjustments or by posting journal entries first
5. When the difference is $0.00, finish and save the report

Xero:

1. Go to the bank account → Reconcile tab
2. Match statement lines to transactions or create them from the statement line
3. Post bank fees and interest directly from the reconciliation screen with proper accounts
4. Use the Account Transactions report to check for duplicates
5. Publish the Bank Reconciliation Summary and save it

Tip: Even with software help, the real control is your review. Never let “auto-match” replace your judgment.

When to get help

If reconciliation routinely takes more than a few hours, if more than a handful of items roll forward each month, or if you have multiple processors and accounts, it may be time to bring in professional help. Clean books make tax time faster, lender conversations easier, and decision-making better.

Explore our bookkeeping services for setup, cleanup, and monthly close support. We tailor your process, document your workflows, and keep reconciliations current.

Local bookkeeping help

We support businesses across the Northeast with timely, accurate reconciliations and month-end close:

• Bookkeeping services Stamford CT
• Bookkeeping service in NYC
• Bookkeepers in Milford CT
• Bookkeepers in Bridgeport
• Bookkeepers in New Haven
• Bookkeepers in White Plains NY
• Bookkeepers in Fairfield CT
• Bookkeeper Long Island NY
• Bookkeepers in Westport CT
• Bookkeeping Shelton CT

Add these as internal links to your location pages to strengthen local visibility and help readers find the nearest team.

FAQ: fast answers to common reconciliation questions

What if my balances never match?

Work backward. Confirm the opening balance matches last month’s reconciled ending balance. Then check counts and totals for deposits and payments. Look next for bank fees, interest, duplicates, and transposition errors. Keep narrowing the gap until it hits zero.

Do I need to reconcile savings, merchant, and PayPal accounts too?

Yes. Reconcile every account that moves money, including merchant and wallet accounts. Each one affects cash and revenue accuracy.

How long should I keep bank reconciliation reports?

Keep statements and reconciliation reports for at least seven years. Digital copies with attachments are fine if they’re complete and accessible.

Can I reconcile mid-month?

Yes. You can run an “as-of” mini-reconciliation anytime to check cash, but you should still complete a formal month-end reconciliation for your close.

What’s the difference between a bank reconciliation and reviewing the bank feed?

The bank feed is just a convenience tool. A reconciliation is a documented proof that your books and bank agree after timing differences and bank-only items are considered.

How do I handle foreign currency accounts?

Reconcile the foreign currency statement first in its native currency. Then book any realized FX gains or losses. Use consistent rates and document your policy.

What about stale checks older than 90 days?

Follow up with the payee. If truly stale, void and re-issue or resolve via credit. Some states have escheat rules for unclaimed property; document your actions.

A simple reconciliation checklist you can reuse

• Match opening balance to last month’s reconciled ending balance
• Tick deposits and identify deposits in transit
• Tick payments and identify outstanding checks
• Post bank fees, interest, loan drafts, NSF, and processor fees
• Investigate unmatched items and fix books as needed
  
• Prove adjusted bank = adjusted books
• Save reconciliation report, statement, and attachments
• Lock the period and move to the rest of month-end close

Bottom line

Reconciliation is not optional. It is the one practice that keeps cash honest, margins real, and decisions grounded. Follow the steps above, make it part of your monthly close, and protect your business from costly surprises. If you want a clean handoff and a proven process, our team can set up the workflow, train your staff, or handle the whole close through our bookkeeping services, including support in Stamford CT, NYC, Milford, Bridgeport, New Haven, White Plains NY, Fairfield CT, Long Island NY, Westport CT, and Shelton CT.