Bank Reconciliation Step by Step: How to Match Your Books to the Bank

Your books say there is Rp 48 million in the bank. The bank says Rp 44.3 million. One of them is missing something, and until you find out what, every report built on those books is uncertain. Bank reconciliation is the routine that finds it. It is neither difficult nor optional.

What it is

A bank reconciliation compares two records of the same account: the cash account in your books and the statement from the bank. At the end you can explain every difference between the two closing balances.

Why it matters

• It finds errors. An amount typed wrongly, a payment recorded twice, a sale never recorded.
• It finds what you did not know. Bank fees, interest, a customer payment that arrived without notice, an automatic debit.
• It finds fraud early. An unfamiliar withdrawal is spotted within weeks, not at year end.
• It gives a true cash figure. You know what is really available.
• It keeps the books trustworthy for tax filings, lenders and your own decisions.

What you need

• The bank statement for the period.
• Your cash or bank ledger for the same period.
• Last period's reconciliation, including items that were still outstanding.

The six steps

Step 1: check the starting point

The opening balance in your books should equal the closing balance of the last reconciliation. If it does not, something from a previous period was changed. Fix that first.

Step 2: match the money that came in

Go through each deposit on the bank statement and find it in your books. Tick both when they match in amount and approximate date.

You will find:

• In the bank and not in the books. A customer paid and nobody recorded it, or interest was credited. Record it.
• In the books and not in the bank. A deposit recorded at month end that the bank has not processed, or a recording mistake. If it is a timing difference, list it as a deposit in transit.

Step 3: match the money that went out

Do the same for each payment, transfer and withdrawal.

• In the bank and not in the books. Bank charges, automatic debits, a forgotten payment. Record them.
• In the books and not in the bank. A transfer or cheque issued and not yet cleared. List it as an outstanding payment.

Step 4: record what the bank knew first

Enter in your books the items you found only on the statement:

• Bank fees and administration charges.
• Interest earned and tax on it.
• Automatic payments such as loan instalments.
• Direct customer payments.
• Returned or failed transfers.

Step 5: correct your own errors

Fix any mistakes in the books: wrong amounts, duplicates, entries posted to the wrong account. Correct them with a clear note instead of silently overwriting, so there is a trail.

Step 6: prove the balance

Now calculate:

Bank statement closing balance

plus deposits in transit

minus outstanding payments

equals adjusted bank balance

That adjusted figure must equal the closing balance in your books after steps four and five. If it does, you are reconciled. Save the reconciliation with the list of outstanding items.

A small example

• Bank statement closing balance: Rp 44,300,000.
• A customer transfer of Rp 5,000,000 recorded on the 31st, processed by the bank on the 1st: deposit in transit.
• A supplier payment of Rp 1,200,000 issued on the 30th, not yet cleared: outstanding.
• Adjusted bank balance: 44,300,000 + 5,000,000 - 1,200,000 = Rp 48,100,000.

In the books, the balance showed Rp 48,000,000. On the statement there was interest of Rp 150,000 and a bank fee of Rp 50,000 that had not been recorded. After recording both: 48,000,000 + 150,000 - 50,000 = Rp 48,100,000. The two agree.

When it does not balance

Look for the difference methodically.

1. Is the opening balance right?
2. Is there a single transaction equal to the difference? It was probably missed on one side.
3. Is there one equal to half the difference? It may have been recorded as money in when it was money out.
4. Is the difference divisible by nine? Two digits may have been swapped, such as 5,400 typed as 4,500.
5. Was something entered twice?
6. Narrow the period. Reconcile week by week to find where the mismatch begins.

Do not force the balance with an unexplained adjusting entry. That defeats the purpose.

Items that stay outstanding

Review the list of outstanding items each month. A payment that has not cleared after several weeks deserves a call. A deposit in transit that never arrives may be a bounced payment or a recording error.

Good habits

• Reconcile every account, including savings, e-wallets and payment gateway balances.
• Do it promptly after the period ends.
• Separate duties where possible. The person who makes payments should not be the only one who reconciles.
• Keep the evidence. Statement, reconciliation and notes, filed by month.
• Have the owner review it. A signature or a glance each month is a strong control.
• Record transactions daily. Reconciliation is quick when the books are current, and slow when a month of entries is missing.

Payment gateways and marketplaces

Sales through a marketplace or a payment gateway add a step. The amount that reaches your bank is net of fees and may combine several days of sales. Reconcile the gateway's settlement report to your sales records first, record the fees as an expense, then match the net settlement to the bank.

How software helps

Matching by hand works for a few dozen transactions. Beyond that, bookkeeping software that imports the statement and proposes matches by amount and date turns hours into minutes, and leaves you the exceptions to investigate. Polynusa's bookkeeping keeps invoices, payments and bank transactions in the same workspace, which shortens the matching. See the pricing page.

Summary

Each month, confirm the opening balance, match deposits and payments, record what appears only at the bank, correct your errors, and list timing differences. The adjusted bank balance must equal your books. Investigate anything unexplained, and never force the balance.

FAQ

How often should a small business reconcile its bank account?

At least once a month, after the statement is available. Businesses with many transactions benefit from doing it weekly, because a problem found within days is much easier to trace than one found weeks later.

What is a timing difference in a bank reconciliation?

It is a transaction recorded in your books and in the bank's records on different dates. A transfer you recorded on the 31st that the bank processed on the 1st is an example. Timing differences clear by themselves in the following period and do not need a correction.

What should we do if the reconciliation does not balance?

Work through it in order. Check the opening balance, look for an amount equal to the difference, look for half the difference in case an entry was recorded on the wrong side, and check for transposed digits. If it still does not balance, compare transactions day by day until the first mismatch appears.