How to Do a Bank Reconciliation in 6 Steps

A bank reconciliation compares the cash transactions in your own records against the transactions on your bank statement and explains every difference between the two ending balances. If you are new to the concept, start with what is a bank reconciliation for the background. This guide walks through the process itself, broken into six steps you can repeat every period.

The goal is simple: get the adjusted balance from your books and the adjusted balance from your bank statement to land on the same number. When they agree, your cash account is reconciled and you can trust the figure you report.

Step 1: Gather your statement and your books

Pull the bank statement for the period you are reconciling — usually a calendar month — and open your own cash records for the same dates. Your records might be a spreadsheet, accounting software, or a manual cash ledger. Whatever you use, you need the starting balance, every transaction in between, and the ending balance.

Two things make this step easier. First, reconcile in date order so nothing gets skipped. Second, work from clean rows. If your statement is a PDF, converting it to a spreadsheet first saves you from retyping every line — you can use a free bank statement converter to turn the PDF into rows you can sort and tick off.

Step 2: Match transactions line by line

Go through each transaction and find its twin. A check you wrote should appear in your books and, once it clears, on the statement. A deposit you recorded should show up on the statement once the bank processes it. As you confirm each pair, mark both sides — a checkmark, a highlight, or a status column all work.

Most transactions match cleanly. The ones that do not are your reconciling items, and the next few steps deal with each type. Do not change any numbers yet; right now you are only identifying what is unmatched.

Step 3: List outstanding checks and deposits in transit

After matching, two groups of unmatched items usually remain on the books side:

• Outstanding checks — checks you wrote and recorded in your books, but that the recipient has not yet cashed, so they have not hit the bank statement.
• Deposits in transit — money you received and recorded in your books, but that the bank had not yet processed by the statement closing date.

These are timing differences, not errors. The transaction is real and correctly recorded in your books; the bank simply has not caught up. You will apply them to the bank side in Step 5.

Step 4: Record bank fees, interest, and other bank-only items

Now look for items that appear on the statement but are missing from your books. These are things the bank did that you had no way to record in advance:

• Service charges and bank fees — monthly fees, wire fees, or overdraft charges.
• Interest earned — interest the bank credited to your account.
• Automatic payments or returned items — direct debits, bounced checks, or NSF charges you had not yet entered.

Each of these needs to be entered into your own records, because they are genuine transactions you simply did not know about until the statement arrived. Note them so you can post them in the next step.

Step 5: Adjust both sides

This is where many people make mistakes, so go carefully and keep the two sides separate.

Adjust the bank statement balance for timing differences:

• Add deposits in transit. The bank balance is temporarily too low because it has not recorded these deposits yet, so add them.
• Subtract outstanding checks. The bank balance is temporarily too high because the money has not actually left the account yet, so subtract them.

Adjust the book balance for bank-only items:

• Subtract bank fees and other charges. The bank already took this money; record it now.
• Add interest earned and any credits the bank applied that you had not recorded.

A quick way to remember the direction: outstanding checks and deposits in transit are corrections to the bank side, while fees and interest are corrections to the books side. Outstanding checks are subtracted from the bank balance — that single rule trips up most beginners.

Step 6: Confirm both sides agree

Add up your two adjusted figures:

• Bank statement balance, plus deposits in transit, minus outstanding checks = adjusted bank balance.
• Book balance, minus fees, plus interest = adjusted book balance.

If the two adjusted balances match, you are done. Lock the period and keep the worksheet — the IRS expects businesses to keep records that support the income and deductions on a return, as described in its guidance on recordkeeping.

If the two sides do not match, the difference is your clue. A small, oddly specific gap often points to a transposed number or a single missed entry. Re-check that every transaction was matched in Step 2, that you applied each reconciling item to the correct side, and that nothing was added where it should have been subtracted. Keep working through items until the two adjusted balances meet.

Putting it together

The whole process comes down to a rhythm: gather both records, match what lines up, separate what does not into timing differences and bank-only items, adjust each side for its own type of item, and confirm the totals agree. Done monthly, it rarely takes long, and it catches errors while they are still small.

For a fully worked walkthrough with real numbers, see this bank reconciliation example. And because most of the effort is lining up transactions, getting your statement into a spreadsheet first is worth it — the bank statement converter turns a PDF into clean rows you can match against your books.