Bank reconciliation: Definition and step-by-step guide
- What is bank reconciliation?
- Why is it important to reconcile your bank statements?
- How to reconcile a bank statement
- Understanding the bank reconciliation statement
- Best practices for bank reconciliation
- Common challenges and solutions
- Take the hassle out of bank reconciliation with Ramp
You’ve probably experienced that moment of confusion when your company’s accounting records don’t match what’s on your latest bank statement. That’s where bank reconciliation comes in.
Bank reconciliation is the process of comparing your internal financial records with your bank’s statements to make sure every transaction aligns. Regularly reconciling your bank statements helps you spot accounting errors, catch fraudulent activity early, and maintain accurate, up-to-date records that you and your stakeholders can trust.
What is bank reconciliation?
Bank reconciliation, also known as a bank reconciliation statement (BRS), is the bookkeeping method used to compare the balance recorded in your business’s accounting records against the balance reported in the most recent bank statement. If there are any discrepancies between the two amounts, they must be investigated and resolved.
Bank reconciliations are typically performed by accountants, bookkeepers, or business owners to ensure every transaction, such as deposits, withdrawals, and fees, is accurately recorded. This process helps maintain reliable financial records and provides a clear view of your company’s true cash position.
In short, a bank reconciliation ensures your books reflect your actual cash on hand, giving you confidence in your company’s financial data.
Bank reconciliation vs. reconciliation in accounting
In accounting, reconciliation broadly refers to verifying that two sets of records match. Bank reconciliation is a specific type of reconciliation that focuses on aligning cash accounts with bank statements.
Other common types of reconciliation include:
- Vendor reconciliation: Matching supplier statements with accounts payable
- Customer reconciliation: Verifying accounts receivable records against payments received
- Credit card reconciliation: Checking expenses against credit card statements
Together, these processes help ensure accuracy across all your company’s financial records, not just those related to cash.
Why is it important to reconcile your bank statements?
Bank reconciliation gives you a clear picture of your company’s finances and helps you stay in control of cash flow. It also plays a critical role in detecting fraud, preventing costly accounting errors, and keeping records reliable.
Here are the major reasons why it’s important to reconcile your bank statements:
Detecting fraud
Reconciling bank statements is one of the most effective ways to uncover fraud, such as altered checks, duplicate payments, or unauthorized transfers. Warning signs include unfamiliar vendors, missing deposits, or unexplained withdrawals.
According to the Association of Certified Fraud Examiners, small businesses lose an estimated 5 percent of annual revenue to fraud each year—a risk regular reconciliation can help prevent.
According to the ACFE’s “Occupational Fraud 2024: A Report to the Nations,” the typical organization loses about 5 % of its annual revenue to fraud each year, a risk regular bank reconciliation can help mitigate.
Identifying accounting errors
Bank reconciliations also help catch data entry mistakes, duplicate transactions, and missed entries that can distort your books. For example, transposing numbers or forgetting to record a deposit can throw off your ending balance. Not every mismatch means an error—some stem from timing differences between when transactions are recorded and when they clear the bank.
Detecting and correcting true errors early ensures accurate financial reporting and prevents tax or budgeting issues down the line.
Managing risk and cash flow
Accurate reconciliations support better decision-making by giving leaders and investors a reliable picture of your company’s cash position. With current, verified data, your business can plan strategically, manage risk, and make informed spending and investment choices.
How to reconcile a bank statement
To complete a bank reconciliation, you’ll need your company ledger, recent bank statements, and any previous reconciliation reports.
1. Gather your documents
Collect your most recent bank statement, the general ledger or cash book, and prior reconciliation reports for reference. It’s best to perform reconciliations monthly, right after receiving your bank statement, to keep records current and easier to verify.
2. Compare opening balances
Ensure the opening balance on your bank statement matches the opening cash balance in your ledger. If they don’t align, check for unresolved items from the prior month’s reconciliation or data entry errors.
3. Review bank statement transactions
Compare deposits, withdrawals, and transfers on the statement to those in your books. Confirm all items are recorded correctly, and note any bank fees, service charges, or interest income that appear only on the statement.
4. Identify discrepancies
If transactions don’t match, look for common causes like outstanding checks, timing delays, or duplicate entries. Some differences may simply reflect timing delays between when transactions are recorded and when they clear. Mark any unexplained differences for investigation, as these could be recording errors, missing receipts, or even bank mistakes.
5. Make adjusting entries
Record any missing transactions in your accounting system, such as bank fees, interest earned, or unrecorded deposits. Adjust journal entries as needed to reflect accurate cash activity.
6. Prepare the bank reconciliation statement
After adjustments, add any outstanding deposits and subtract outstanding checks from the bank statement balance. The resulting adjusted bank balance should equal your adjusted book balance. If not, recheck for missing or misclassified items before finalizing your reconciliation report.
Bank reconciliation checklist
- Verify opening balances match
- Check all deposits and withdrawals
- Note outstanding checks or deposits in transit
- Record missing bank fees or interest
- Confirm the adjusted balances match before closing the report
Understanding the bank reconciliation statement
A bank reconciliation statement is a formal record comparing your company’s internal cash balance with the balance shown on the bank statement.
Its purpose is to verify that both records match and to document any adjustments made to resolve differences. This statement also serves as an audit trail, ensuring transparency and accurate financial reporting.
Components of a bank reconciliation statement
A typical bank reconciliation statement includes these sections:
- Book balance: The cash balance recorded in your company’s accounting ledger
- Bank balance: The ending balance reported on the bank statement
- Adjustments: Items such as outstanding checks, deposits in transit, or unrecorded bank transactions that explain differences between the two balances
- Reconciled balance: The final adjusted balance that should match between the bank and book records after reconciliation
Once these components are reviewed and adjusted, both records should align to reflect your company’s true cash position.
Common adjustments in bank reconciliation
During reconciliation, you’ll often need to adjust one or both balances to account for timing differences or unrecorded transactions. The most common adjustments include:
- Outstanding checks: Checks you issued that haven’t yet cleared the bank
- Deposits in transit: Payments recorded in your books but not yet reflected in the bank statement
- NSF (non-sufficient funds) checks: Customer payments returned due to insufficient funds and deducted from your books
- Bank errors: Mistakes such as duplicate payments or incorrect amounts
- Bank service charges: Monthly fees, processing costs, or interest adjustments that appear only on the bank statement
These adjustments explain why your book and bank balances may differ and are essential for ensuring both records match after reconciliation.
Sample bank reconciliation template
Imagine your books show a month-end balance of $150,000, but your bank statement lists $152,500. After reviewing the details, you find an unrecorded bank deposit of $3,000, a bank service charge of $500, and an automatic loan payment of $2,000 that hadn’t been entered.
By working through the reconciliation process, you can pinpoint and correct these differences so your records accurately reflect your company’s true cash position. The example below shows how these adjustments appear in a simplified bank reconciliation statement.
| Bank balance | $152,500 | Book balance | $150,000 |
|---|---|---|---|
| Add: Pending deposits, entries logged on book balance | Add: Unrecorded deposit | $3,000 | |
| Less: Outstanding checks, entries logged on book balance | $2,000 | Less: Service charges, bank fees recorded on the bank balance | $500 |
| Adjusted bank balance | $150,000 | Adjusted book balance | $150,000 |
This example demonstrates how discrepancies between the bank statement and book balance were resolved through the bank reconciliation process, making sure both balances are aligned at $150,000.
Best practices for bank reconciliation
Establish consistent reconciliation habits to keep your financial records accurate and up to date. These best practices can help streamline your process and strengthen financial controls.
Reconcile regularly
Reconcile bank statements at least once a month, ideally right after receiving each statement. Small businesses can do this monthly, while high-volume organizations may benefit from weekly or even daily reconciliations to stay on top of cash flow and spot issues sooner.
Keep records organized
Maintain clear documentation for each reconciliation, including bank statements, receipts, and adjusting journal entries. Organized records make it easier to trace discrepancies, prepare for audits, and identify recurring problems.
Segregate duties
Whenever possible, separate who records transactions, approves payments, and performs reconciliations. Dividing responsibilities adds oversight and reduces the risk of fraud or accidental errors.
Use automation and accounting software
Manual reconciliation relies on spreadsheets and hand-matching, which can be slow and error-prone. Automated reconciliation software instantly matches transactions, flags discrepancies, and creates audit trails—saving time and reducing mistakes.
Following these best practices helps ensure your books are accurate, your cash flow is clear, and your business is ready for audits or strategic decisions at any time.
Common challenges and solutions
Even with a solid reconciliation process, challenges can still arise. Here are some of the most common issues businesses face—and practical ways to solve them quickly:
- Missing or delayed transactions: Deposits or payments appear late or not at all on the bank statement. Track deposits in transit and follow up with your bank for unposted items.
- Data entry errors: Transposed numbers or duplicate entries can cause mismatched balances. Using accounting software with automated import and matching helps reduce manual entry mistakes.
- Unrecorded fees or interest: Bank fees, interest income, or automatic withdrawals may not be captured in your books. Review each statement line by line and record adjustments right away.
- Fraud or unauthorized transactions: Suspicious withdrawals or altered checks can go unnoticed. Reconcile often, set user permissions, and monitor alerts for unusual activity.
If your books still don’t match after a few attempts or reconciliations take longer than expected, it may be time to bring in an accountant or bookkeeper. Addressing these issues early keeps your records accurate and your reconciliation process efficient.
Take the hassle out of bank reconciliation with Ramp
Bank reconciliation can be a major contributor to a healthy financial culture—or a monthly nightmare for your accounting team.
Ramp’s accounting automation software removes manual work by syncing transactions, automatically matching expenses, and flagging discrepancies before they become problems.
One Ramp customer cut reconciliation time by 75%, reducing their monthly workload from 40 hours to just 10. With automated reporting, real-time expense tracking, and seamless integrations, Ramp helps your business close the books faster and with total accuracy.
Get started with a free interactive product demo.
FAQs
Bank reconciliation isn’t difficult once you understand the process. It mainly involves matching your records with your bank statement to find and correct discrepancies. Using accounting software can make the task faster and easier.
Bank reconciliation is typically handled by your company’s accountant or bookkeeper, though small-business owners often do it themselves. The key is ensuring the person responsible understands both the bank statement and your company’s financial records.
The three main methods are document review, analytical reconciliation, and adjusted balance reconciliation. Each method compares your company’s records to the bank’s data in slightly different ways to ensure all transactions align accurately.
“Ramp is the only vendor that can service all of our employees across the globe in one unified system. They handle multiple currencies seamlessly, integrate with all of our accounting systems, and thanks to their customizable card and policy controls, we're compliant worldwide.” ”
Brandon Zell
Chief Accounting Officer, Notion
“When our teams need something, they usually need it right away. The more time we can save doing all those tedious tasks, the more time we can dedicate to supporting our student-athletes.”
Sarah Harris
Secretary, The University of Tennessee Athletics Foundation, Inc.
“Ramp had everything we were looking for, and even things we weren't looking for. The policy aspects, that's something I never even dreamed of that a purchasing card program could handle.”
Doug Volesky
Director of Finance, City of Mount Vernon
“Switching from Brex to Ramp wasn’t just a platform swap—it was a strategic upgrade that aligned with our mission to be agile, efficient, and financially savvy.”
Lily Liu
CEO, Piñata
“With Ramp, everything lives in one place. You can click into a vendor and see every transaction, invoice, and contract. That didn’t exist in Zip. It’s made approvals much faster because decision-makers aren’t chasing down information—they have it all at their fingertips.”
Ryan Williams
Manager, Contract and Vendor Management, Advisor360°
“The ability to create flexible parameters, such as allowing bookings up to 25% above market rate, has been really good for us. Plus, having all the information within the same platform is really valuable.”
Caroline Hill
Assistant Controller, Sana Benefits
“More vendors are allowing for discounts now, because they’re seeing the quick payment. That started with Ramp—getting everyone paid on time. We’ll get a 1-2% discount for paying early. That doesn’t sound like a lot, but when you’re dealing with hundreds of millions of dollars, it does add up.”
James Hardy
CFO, SAM Construction Group
“We’ve simplified our workflows while improving accuracy, and we are faster in closing with the help of automation. We could not have achieved this without the solutions Ramp brought to the table.”
Kaustubh Khandelwal
VP of Finance, Poshmark
