Step 1: Gather Your Records and Starting Point
Begin by collecting the bank statement for the period and opening your accounting records for the same account and dates. Confirm your starting point, which is the ending balance from the previous reconciliation. If last month reconciled cleanly, this period builds on that verified base. Make sure no transactions from the period are missing from your books before you start, since reconciliation reveals gaps but is far smoother when the obvious entries are already in. A clean starting point is what makes the rest of the process reliable.
Step 2: Match Cleared Transactions
Go through each transaction on the bank statement and find its match in your records. Tick off every item that appears in both places with the same amount and date. Most transactions will match cleanly. As you go, you build two lists of exceptions: items on the statement that are not in your books, and items in your books that have not appeared on the statement. This matching step is the heart of reconciliation and is exactly the part that software accelerates, since a tool can propose matches automatically and leave you only the exceptions.
Step 3: Record Fees, Interest, and Charges
The bank statement almost always contains items you have not yet recorded: monthly service fees, transaction charges, interest earned, or automatic payments. These are legitimate transactions; they simply originated at the bank. Enter each one into your books so your records reflect them. This is a common source of small recurring discrepancies, because it is easy to forget charges that you never initiated yourself. Recording them now keeps your cash balance and your expense accounts accurate.
Step 4: Account for Outstanding and In-Transit Items
Some of your recorded transactions will not yet appear on the statement. Payments you issued that have not cleared are outstanding; deposits you made near the period end may still be in transit. These are not errors, they are timing differences. List them so you can adjust the bank balance for comparison: add deposits in transit and subtract outstanding payments from the statement’s ending balance. These items typically clear in the following period, at which point they match and drop off the list.
Step 5: Confirm the Balances Agree
Now compare. Take the bank statement’s ending balance, add deposits in transit, subtract outstanding payments, and you have the adjusted bank balance. Take your book balance and adjust it for any fees or interest you just recorded. The two adjusted figures should be identical. If they are, the account is reconciled and you can lock the period. If they differ, the gap equals one or more unresolved items, so revisit your exception lists until the difference is explained. Document the result so next period has a clean starting point.