Bank reconciliation means comparing the transactions and balance in your bookkeeping system with the bank’s independent record. The aim is to explain every difference, correct errors and leave a reliable balance for a stated date. A connected bank feed helps import transactions; it does not prove that those transactions have been recorded correctly.
In this article
- Choose a statement date
- Match payments and receipts
- Investigate each difference
- Save the completed reconciliation
Reconcile each business bank account separately. Include savings accounts, business credit cards and payment-provider balances where relevant. Combining them into one total can hide a missing transfer or an error in one account behind the opposite error elsewhere.
Start with a complete statement
Choose a cut-off date and obtain the statement covering the whole period. Check that the opening balance agrees with the previous completed reconciliation. If it does not, investigate the opening difference before working through new transactions: a perfect match for this month will not repair an incorrect starting point.
Use the statement as the comparison document, rather than another export from the same bookkeeping feed. Confirm the account number and currency. Check whether the statement reports cleared transactions, while the software includes payments entered but not yet cleared.
For a first reconciliation, save the statement and a copy of the ledger before editing anything. This gives you a route back if an apparently helpful correction makes the difference larger.
Match transactions, not just amounts
Work through receipts and payments in date order. Compare the amount, payee, reference and business purpose. Two payments of £240 are not necessarily the same transaction. A bank line described as a transfer might be a movement between your own accounts, a loan repayment or money paid to an owner.
Where a customer payment covers three invoices, allocate it to those invoices rather than creating a fourth sale. Where a card provider deposits a net settlement, reconcile the underlying sales, fees and refunds using its settlement report. Recording the deposit as sales can understate turnover and conceal charges.
| Difference | Useful first check |
|---|---|
| Statement payment missing from books | Supplier document, direct debit or bank charge |
| Book entry missing from statement | Payment date, account used and whether it cleared |
| One amount differs | Transposed digits, currency conversion or partial payment |
| Same transaction appears twice | Manual entry plus feed import |
| Receipt cannot be identified | Customer remittance and payment-provider report |
| Transfer looks like income | Matching withdrawal from the other account |
A worked difference
Illustrative example: a business opens the month with £1,000, receives £2,500 and pays £2,000 to suppliers. Its books show £1,500. The bank statement closes at £1,480 because it also includes a £20 account fee.
After checking that the fee belongs to this account and period, the bookkeeper records the £20 charge against the bank. The corrected book balance is £1,480. There is no need to change a supplier invoice or enter an unexplained “balancing expense”.
Now imagine the books contain a £300 payment authorised on the last day of the month, but it clears after the statement date. That may be a genuine timing item. Record the reason and verify clearance on the next statement. Do not automatically delete it simply to force the balances to agree.
Correct the cause with an audit trail
An adjustment should explain what was wrong. Attach the supporting document and add a clear description, such as “duplicate import of payment reference 4821 removed”. If a period is locked, or a transaction has already been included in submitted accounts or a tax return, ask the accountant how to correct it before changing the historical entry.
Avoid posting the entire difference to miscellaneous expenses. It might contain several errors: an omitted charge, a duplicated receipt and a transfer recorded as income. Netting them into one number can create misleading sales, costs and customer balances even when the bank total agrees.
Keep a short exception log with the amount, suspected cause, evidence needed, owner and follow-up date. An unresolved difference becomes manageable when someone is responsible for investigating it.
Finish and keep it finished
At completion, retain the statement, reconciliation report, adjustments and explanation of outstanding items. Confirm that old timing differences have cleared or been investigated. A payment carried forward for several months deserves more attention than a recent payment still passing through the bank.
Reconcile regularly enough to catch problems while documents and memories are available. For a busy business, weekly checks followed by a formal monthly reconciliation may be more useful than waiting until year end. Review access permissions and agree who can alter reconciled transactions.
If balances repeatedly disagree, look for a process fault: missing feed periods, settlement reports that are never downloaded or several people entering the same payment. EPOS bookkeeping services are a starting point for discussing reconciliations, record quality and an appropriate routine for your business.