Bank Reconciliation
The monthly process of comparing the bank statement to the bookkeeping records to identify and resolve discrepancies between them.
Detailed Explanation
Reconciliation is foundational bookkeeping hygiene: missing transactions, duplicates, bank errors, and timing differences (outstanding checks, deposits in transit) are caught here. Software like QuickBooks Online and Xero automates the matching but human review is still required to resolve unmatched items. Books that are not reconciled monthly accumulate errors that compound through the year and become tax-time fire drills.
Key Points
- Monthly comparison of the bank statement to the books to confirm they agree.
- Catches missing or duplicate entries, bank errors, and timing differences (outstanding checks, deposits in transit).
- Software automates matching, but a human must resolve unmatched items.
- Unreconciled books accumulate compounding errors that distort financial statements and tax returns.
- Reconciled accounts are a baseline expectation for lenders, auditors, and clean tax filings.
Practical Example
At month end the books show a $12,400 bank balance but the statement shows $13,900. Reconciliation reveals a $1,500 customer check recorded in the books but not yet cleared (a deposit in transit), confirming the records are accurate once the timing difference is identified.
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Learn about Bookkeeping ServicesRelated Terms
Bookkeeping
The systematic recording, classification, and reconciliation of a business's financial transactions to produce accurate financial statements.
Chart of Accounts
The structured list of every account a business uses to record financial transactions, organized into assets, liabilities, equity, revenue, and expenses.
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