What Is a Bank Reconciliation? Definition & Example

A bank reconciliation is the process of comparing the transactions in your own records (your "books") against the transactions on your bank statement, and explaining any difference between the two ending balances.

Why reconciliations matter

When your books and your statement disagree, something needs attention: a payment that has not cleared yet, a bank fee you did not record, a duplicate entry, or an error. Reconciling regularly catches these early and keeps your reported cash balance trustworthy. The IRS also expects businesses to keep records that support the income and deductions on a return — see the official guidance on recordkeeping.

The two sides you compare

• Your books — the cash account in your spreadsheet or accounting software.
• The bank statement — what the bank actually processed during the period.

Common reconciling items include outstanding checks, deposits in transit, bank charges, and interest credited by the bank.

A simple example

Suppose your books show an ending balance of $4,800, but the statement shows $5,000.

1. You find a $250 check you wrote that has not cleared yet (outstanding check).
2. You find a $50 bank fee on the statement you had not recorded.

An outstanding check is money you have already deducted in your books but the bank has not paid out yet, so the statement balance is temporarily too high — adjust the statement side down by it. The fee is money the bank already took that you have not recorded, so adjust the books side down by it:

• Statement $5,000 − $250 outstanding check = $4,750
• Books $4,800 − $50 fee = $4,750

Both sides now agree at $4,750. That matching figure is the reconciled balance. If the two sides had not met, you would keep identifying reconciling items until they did.

Making it faster

Most of the work is lining up transactions, which is far easier once the statement is in a spreadsheet. See how to convert a bank statement to Excel, or start with the free converter and reconcile from clean rows.