How to reconcile a bank statement

The equation you are proving

Every reconciliation rests on one identity. For a bank account:

A credit card inverts it, because the balance is money you owe rather than money you hold: previous balance, minus payments and credits, plus new charges, fees and interest, gives the new balance. Reading a card statement as though it were a bank account is one of the most common sources of a reconciliation that will not close.

If the statement itself does not satisfy its own equation, the problem is your copy of the data, not your books. Fix that before comparing anything to your ledger.

The process

1. Fix the period. Take one statement, end to end. Reconciling a partial period is where most confusion starts.
2. Check the statement against itself: opening plus credits minus debits should equal closing, using the figures the statement prints in its own summary.
3. Match each statement line to a line in your books. Tick both.
4. List what is on the statement but not in your books. These are usually bank fees, interest, direct debits you forgot, or a payment that failed.
5. List what is in your books but not on the statement. These are outstanding items: cheques written but not presented, deposits in transit.
6. Compute the adjusted balance: statement closing balance, minus outstanding payments, plus deposits in transit. It should equal your ledger balance.
7. Post the items from step 4 into your books. Do not adjust for step 5 — those clear on their own.

Why timing differences are not errors

A cheque you wrote on the 29th leaves your books that day, but reaches the bank in the next period. Neither record is wrong; they are describing the same event at different moments. That is why the reconciliation adjusts the statement balance rather than correcting either set of books.

• Outstanding payments: written and recorded by you, not yet presented at the bank. Subtract from the statement balance.
• Deposits in transit: received and recorded by you, not yet credited. Add to the statement balance.
• Bank-originated items: fees, interest, card charges. These belong in your books and were simply not known until the statement arrived.

Carry the outstanding list forward. An item that is still outstanding three periods later is worth investigating: a cheque may have been lost, or recorded twice.

Finding a difference quickly

When the two sides do not agree, the difference itself is a clue. Work through these before re-adding anything.

The divisible-by-nine test is genuinely useful: any transposition of two digits produces a difference that is a multiple of nine, so if your difference is 27, 90 or 900, look for a transposition before anything else.

Reconciling a statement you converted from PDF

When the statement began as a PDF, there is a step before the usual process: proving the extraction is complete. A missing row makes a reconciliation fail in exactly the same way a missing ledger entry does, but the fix is different.

Every conversion here runs six checks and reports them in the Conversion Report:

• Balance: opening plus the transactions equals the closing balance.
• Running balance: each row's printed balance follows from the previous one. This is the strongest check, because it localises the fault to a row rather than a total.
• Totals: the extracted debits and credits match the totals the statement prints.
• Counts: the number of rows matches any count the statement states, such as "28 Debit(s) This Period".
• Account summary: the summary box adds up, and the movements it lists match the transactions extracted.
• Duplicates: the same transaction has not been captured twice at a page boundary.

Not every check applies to every statement — a card statement rarely prints a running balance, and many statements print no totals — so the report says which ones ran. A statement that passes all of them is worth trusting; one that passes only the aggregate checks could still hide two errors that cancel out.

How often to do it

Monthly is the usual rhythm because statements arrive monthly, and because a month is a small enough haystack to search. Businesses with high transaction volumes often reconcile weekly, using the bank's own mid-period balances.

• Reconcile before you file anything: a VAT return or a set of accounts built on unreconciled books will need redoing.
• Reconcile before you chase a discrepancy with the bank. Banks make mistakes, but the odds favour the ledger being wrong.
• Keep the completed reconciliation. It is the evidence that the closing balance was proved, and it is what an accountant or auditor will ask for.