Reconciling a bank statement might seem like an unnecessary task with online banking available at your fingertips. However, it’s a process that will help you keep track of your finances in several ways, including:

  • Tracking spending
  • Catching fraudulent activity
  • Finding bank errors

The process of reconciling your bank statements is helpful whether you run a small business or just want to keep track of your account balance.

If you’re wondering how to do bank reconciliation, you shouldn’t worry. The process is very straightforward. Once you update all your financial documents, reconciliation is a simple task you can do every week or month, depending on the number of your transactions.

How to Reconcile a Bank Statement

how to do a bank reconciliation

When you reconcile a bank statement, you’re simply matching up all your financial records with what the bank has recorded. You should keep all your receipts and deposit slips for this purpose.

Before you start, group your receipts. These are expenses or goods and services you’ve paid money for. You can add them up to get the total amount of money you’ve spent in the time period.

Next, find all your deposit slips and add them together. This is how much money you’ve put into your account this month. You can add your deposits to your last bank account balance to get a total. Then subtract your expenses. This number should equal the ending amount on your bank statement.

Sample Reconciliation

For example, say you spent $1,000 in a month. These expenses can come from checks, debit card purchases, and cash withdrawals from your account. Your job directly deposited a $2,000 paycheck.

Your previous bank balance was $2,000. Your deposits show you now have $4,000, but once you subtract your $1,000 expenditures, you’ll have $3,000. Your bank statement should show this amount in your account as well.

If the numbers don’t match, you want to go back over all your records and match them up. Find each receipt and its corresponding line on your bank statement. Make sure the amounts are equal. When you go through the list item by item, you’ll most likely find an expense you don’t have a receipt for but remember.

If you see a charge you didn’t make, be sure it’s the only one. If you share your account with other users, ask them about the purchase. Then contact your bank about possible fraudulent activity.

Bank Statement in Accounting

Bank statements are important for accounting. They’re records of every credit and debit that the bank processes for your account. You can often check them online through your bank’s website or app. Some institutions also mail hard copies to your address.

While the language in this article focuses on banks, reconciliation isn’t limited to bank statements. You can also reconcile your credit card transactions and expenses in online accounts, like PayPal or prepaid cards.

What’s on a Bank Statement

When you look at your bank statement, you’ll see your personal account information at the top. Most banks show an overall summary, totaling your deposits, withdrawals, and fees for a quick look.

They break down all deposits and expenses so you can easily see what you’ve spent and earned each month. You’ll see your deposits and credits listed by date with the total amount associated with the transaction.

Expenses, debits, and withdrawals will have their own section. You can see the date of each purchase, as well as the location, store name if applicable, and total amount spent.

Each of these categories will have a total so you can quickly check them against your records. This method gives you a general overview of the status of your finances. However, you’ll get more detailed to properly reconcile your bank statement.

What Is Reconciling Your Bank Statement?

Reconciling your bank statement means you’re making sure that everything matches up. You have receipts that correspond with debits on your bank statement. Any deposits you’ve made should likewise appear on your statement.

When you reconcile your bank statement, you’re ensuring that you keep track of your money. If you see an unfamiliar charge, you can check your records for proof or dispute it with the bank.

Keeping track of your expenses through reconciling will help you keep your finances in order. You’ll always know how much money you have in your bank account. It can prevent you from overdrafting your account or struggling to make ends meet.

Reconciling statements isn’t limited to the bank. You can also reconcile credit card charges and your online accounts like PayPal.

How Often Should You Reconcile Your Bank Statement?

How often you reconcile your bank statements can vary depending on how many transactions you complete each month. You might wait and reconcile statements when your bank posts the newest statement. Or you might choose to be proactive and keep track of your expenses daily or weekly.

You could even keep track of your statement with every purchase or deposit if you want. You can make a note of an ATM deposit you made on your lunch break. You can deduct expenses when you stop by the grocery store after work. This will keep your account up to date.

You’ll find the right frequency of reconciliation in time. If you’re just starting to reconcile your bank statements, you should go back and make sure everything is correct before jumping into your current statement. You can usually access past statements online through your bank’s website or app.

Once you catch up, reconciling your statements won’t seem like such an intimidating task. It’s easy to keep up with your records when you only have a week or month to update at a time. The more often you reconcile, the more aware you’ll be of your expenses.

Why Is It Important to Reconcile Your Bank Statements?

Many people think it isn’t necessary to reconcile your bank statement these days. After all, you can check your account from your phone and make sure purchases and deposits go through immediately. You can look at your balance before buying something big.

It’s still essential to reconcile your bank statements. You want to keep track of your money and make sure it’s going where it should go. You don’t want to pay bills and forget about them, then later find the company charged you an undeserved late fee. Reconciling your statements keeps you informed about all aspects of your finances.

Track Your Spending

Reconciling your bank statements helps you track your spending. You might notice several charges to restaurants and realize you need to cut down on those expenses.

You’re also able to track your bills and see if your monthly fees have increased over time. If you see that your cell phone bill has cost more over the past two months, you can take a closer look at the bill and see what’s causing the change.

Don’t forget to track your cash expenses. You might withdraw $80 from the ATM but only spend $20. While you want to deduct the $80 from your records when you reconcile the accounts, remember that you haven’t spent it all. Your cash receipts will show the true amount you spent, and if you deduct these from your statement again, you’ll throw off the math.

By reconciling your bank statements periodically, you’re getting a chance to inspect your finances. Otherwise, they might not be on your mind, and you could overspend or incur fees without being aware.

Catch Fraudulent Activity

You’re also able to find fraud when you reconcile your bank statement. A thief might not go on a spending spree if they have your debit or credit card information. Instead, they might make many small purchases over time. If you see charges you didn’t make, you can contact the bank or credit card company for fraud assistance.

Find Bank Errors

You put a lot of trust in the institution that keeps your money safe, but banks make mistakes, too. If you never check your accounts, it might go unnoticed. But when you reconcile your bank statement, you’re able to find any errors that impact your finances.

This process also helps you keep track of checks you’ve sent. If you have a chance that the bank hasn’t voided, you’ll know that the recipient didn’t get it. You can contact them about the mishap, void the original check, and issue a replacement.

Similarly, if someone cashes your check and then claims they never got it, you’ll have records to show otherwise. Having proof can prevent this type of double payment.

What Are the Steps Necessary to Reconcile a Bank Statement?

What Are the Steps Necessary to Reconcile a Bank Statement

You have already learned the general process of reconciling a bank statement. Knowing the necessary steps and how to complete them will ensure you stay on top of your financial information.

1. Compare Your Finances

When you’re ready to reconcile your bank account, you should have all your records handy. This includes the official statement from the bank and receipts for your expenses. You also need deposit slips from transactions and cash you might have made.

You can complete a broad overview of your finances by counting how many credits and debits you have. Check your records first, and then see if it’s the same as the bank statement reports. If so, you’ll have an easier time reconciling the account. If not, you’ll find the error in later steps.

As mentioned previously, you can add up all your deposits and expenses separately. Add the deposits to your starting balance and then subtract the expenses. Your ending amount might be the same as the bank statement, which means you’ve accounted for everything.

Even if it seems like everything adds up, you still want to follow the remaining steps to make sure there are no errors. It’s better to know for sure that everything is above-board when it comes to finances. Otherwise, you’re blindly trusting the numbers, which could mess you up with later reconciliations.

2. Adjust Your Balance

As you go over your bank statement line by line, mark it off, as well as make a note on the receipt or deposit slip. You want to know that something is already accounted for, or else you might count it twice and throw off your math.

You might not have receipts for some transactions that are on your bank statement. Or maybe you have receipts that don’t show up because you paid with the cash you previously withdrew.

Sometimes you’ll mark payment in your own records, but it hasn’t cleared through the bank when they release the statement. These issues can prevent your figures from matching even though everything is technically correct.

It’s natural to trust the bank, but don’t think they can’t make a mistake. You should always double-check each amount on your receipts and deposit slips against the bank statement to make sure the numbers are correct, the decimal point is in the right place, and it’s properly recorded as a credit or debit.

3. Record the Reconciliation

Once you have every piece of financial information accounted for, your amount should match the bank statement. At that point, your reconciliation is complete. You can record the ending balance in your books, so you have it as the starting point for the next reconciliation.

To make the process easier, you can keep track of your finances daily or weekly. Consider keeping a record of all your expenses and updating it every day. Do the same with your deposits. Then you’ll have this information to pull from when you start reconciling your next statement.

Keeping these records will also help you feel prepared at tax time. Instead of having a year’s worth of financial information to sift through, you’ll have monthly reports on hand.

Final Notes

Reconciling your bank statement is a straightforward process that keeps you on top of your finances. You’re able to track your spending and catch fraudulent activity. It gives you a chance to know exactly where your money is going.

If you reconcile your bank statements periodically, you won’t have to worry about overspending. You’ll also be more prepared for tax paperwork when the time comes. Follow the steps above to keep your finances in order.

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