What is a bank reconciliation?
A bank reconciliation compares the cash balance in your accounting records to the balance on the bank's own statement for the same period, adjusting for timing differences like deposits in transit and outstanding checks, until the two amounts agree. It confirms that every transaction the bank recorded is reflected in the books, and vice versa.
By Zuny Fester, Head of Operations and MarketingPart of the payment reconciliation and cash application guide.
| Compares | Book cash balance vs. bank statement balance |
|---|---|
| Common adjustments | Deposits in transit, outstanding checks, bank fees, interest |
| Passes when | Adjusted book balance equals adjusted bank balance |
| Typical frequency | Monthly at minimum, more often at higher transaction volume |
Why the two balances rarely match immediately
A company's books and the bank's own records almost never show the exact same balance on a given day, purely because of timing: a deposit recorded in the books might not appear on the bank statement until the next business day, and a check written and recorded as sent might not clear the bank for days or weeks. A bank reconciliation accounts for these known timing differences explicitly, rather than treating every discrepancy as an error.
What it actually confirms
Once the known timing items are accounted for, a completed reconciliation confirms two things: every transaction on the bank statement has a matching entry in the books, and every cash transaction in the books actually shows up on the bank statement. Anything left over after adjusting for timing differences is a genuine error — a duplicate, a missing entry, or a mistyped amount — that needs to be found and corrected.
Next step
Map the finance workflow with the most exposure and prove the automation path.
Bring the invoice, contract, payment reconciliation, or customer finance workflow you have to defend at audit. Loopfour can map the trigger, controls, integrations, and approval loop.
Worked example
A simple bank reconciliation, start to finish
| Item | Amount |
|---|---|
| Bank statement ending balance | $50,000 |
| Plus: deposit in transit | +$2,000 |
| Less: outstanding checks | -$1,500 |
| Adjusted bank balance | $50,500 |
| Book balance before adjustment | $50,530 |
| Less: unbooked bank fee | -$30 |
| Adjusted book balance | $50,500 |
Both adjusted balances agree at $50,500 — the reconciliation is complete.
Frequently Asked Questions
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Topic
Payment Reconciliation & Cash Application
Payment reconciliation is the process of proving that every dollar that hit your bank account is accounted for somewhere in your books — matched to a deposit, a payout, an invoice, or an explained var…
Read moreDiagnostic
What causes a bank reconciliation to not balance?
In order of likelihood: a transaction was entered twice or not at all, an amount was transposed or mistyped, a bank fee or interest payment was never booked, a deposit in transit or outstanding check wasn't accounted for, or the beginning balance itself was wrong because a prior period's reconciliation was never actually correct.
Read moreHow-to
How do I do a bank reconciliation?
Compare the bank statement to your books for the same period, mark off every transaction that appears on both, and identify what's left: deposits in transit, outstanding checks, and any bank fees or interest not yet recorded. Adjust both balances for these timing items until the adjusted bank balance equals the adjusted book balance.
Read more