Knowledge / Monthly close
What is a bank reconciliation?
A bank reconciliation is the proof that cash on your books equals the bank's ending balance for one date, after you explain every difference. Matching the bank feed is not the same job. The feed posts transactions. The reconciliation is when you finish the period.
The short answer
You take the PDF (or printed) statement for the month. You take the checking or card register in QuickBooks Online or Xero. You check off every line the bank already processed. Anything the bank has that you do not, you add. Anything you have that the bank does not, you leave uncleared and explain. When the difference is $0.00, the month's cash number is real.
The one-line noun lives on reconciliation of bank statement. This page is how you actually do it, and what to do when the two sides disagree.
Why you reconcile
Cash on the balance sheet is the number lenders, you, and your tax pro will treat as fact. If the register is unreconciled, that line is a guess. You can look profitable on the P&L and still bounce a rent check because a fee, an NSF, or a duplicate deposit never hit the books.
Reconciliation also catches the personal charge on the business card, the customer payment sitting in undeposited funds, and the check you recorded twice. Those do not announce themselves in the feed.
Do this at month-end for every bank and card, as part of monthly bookkeeping. Weekly matching keeps the close short. It does not replace the statement.
What you are matching
Two records, one date.
| Bank statement | Your books | |
|---|---|---|
| Source | The PDF from the bank or card issuer | The register for that account in QuickBooks or Xero |
| Ending number | Statement ending balance | Register balance, including uncleared items |
| Date that matters | Statement ending date (often the last calendar day) | The same date. Do not mix March 31 books with an April 6 statement |
| What you prove | Every cleared line is in the books | Every book line that should have cleared did, or you can name why it did not |
School textbooks call this cash book vs pass book and build a two-column bank reconciliation statement. That math is the same job. In QuickBooks or Xero you do not need the worksheet if the Reconcile screen hits $0.00 and you can list the uncleared items.
How to reconcile in QuickBooks Online or Xero
Run this in order. Stop if the beginning balance is already wrong.
- Download the statement that ends on the last day of the month. Do not reconcile to the live online balance. That number moves.
- Open Reconcile for that account. Enter the statement ending balance and the statement ending date exactly as printed.
- If the tool says the beginning balance does not match, fix last month first. You cannot finish this month on a broken prior rec.
- Check off every deposit and payment that appears on the statement. Do not check uncleared checks, pending card charges, or a deposit still in transit.
- Add anything the bank has that you do not: service fees, interest, NSF (bounced) checks, ACH you forgot. Code them to the right account, not to Miscellaneous.
- When the difference is $0.00, finish and save the reconciliation report with the statement PDF.
In QuickBooks Online
Use Reconcile (under Books or Accounting, depending on your layout). The difference line must read $0.00 before you click Finish. After you finish, open the reconciliation report. The cleared balance should match the statement. The uncleared list is your outstanding checks and deposits in transit.
If you connected the bank, most lines are already in the register. That helps you check them off. It is not the reconciliation. People skip Reconcile because the feed looks current. Then cash on the balance sheet does not match the statement.
In Xero
The Reconcile tab is matching: bank line to invoice, bill, or spend money. That is daily work. The period proof is the statement balance for that date. After the month is matched, confirm the statement ending balance and keep the statement with your close file.
A fully matched feed with no statement check is still an unreconciled month.
A worked example
Harbor Light Design, checking account, statement ending March 31.
| Item | Amount |
|---|---|
| Balance per the bank statement, March 31 | $8,640 |
| Deposit recorded March 31, not yet on the statement | + $800 |
| Check #1842 to Westside Print, written March 28, not cleared | − $600 |
| Adjusted bank (true cash) | $8,840 |
| Balance per QuickBooks register, March 31 | $8,855 |
| Bank service charge on the statement, not yet in the books | − $15 |
| Adjusted books (true cash) | $8,840 |
You add the $15 fee in QuickBooks (bank charges, not office expense). You leave check #1842 and the $800 deposit unchecked. When those two clear in April, they show up on next month's statement. You do not delete them to force this month to look tidy.
If you only compared $8,855 to $8,640 and booked a $215 'adjustment,' you would hide a real check, a real deposit, and a real fee. The rec would lie.
Why the two sides do not match
Most differences are timing, not fraud. Name them before you invent an adjusting entry.
- Outstanding checks: you wrote them; the vendor has not cashed them.
- Deposits in transit: you recorded the sale or transfer; the bank has not posted it. Often this is money stuck in undeposited funds.
- Bank fees, interest, and ACH you did not enter.
- NSF checks: a customer payment bounced. You still have to reverse the deposit and chase the invoice.
- Duplicates: the feed imported a transfer and you also entered it by hand.
- Wrong account: a personal card charge, or a transfer coded as income.
- Bank error: rare. Call the bank with the statement line. Do not 'plug' it.
Credit cards are the same job
The card statement is a liability, not an expense account. Reconcile it the same way: statement ending balance, statement date, check off cleared charges, explain uncleared ones.
Paying the card from checking is a transfer that reduces the card liability. If you expense the payment, you double-count spending you already coded when the charge posted. That is one of the fastest ways to make the P&L and the balance sheet stop telling the same story.
Common mistakes
- Calling the bank feed 'reconciled.' Matching is posting. Reconciling is proving the statement.
- Forcing a $0.00 difference with a dummy expense or an undeposited-funds plug. Find the line.
- Reconciling to today's online balance instead of the month-end statement.
- Leaving uncleared transactions from three months ago. They inflate cash or hide expenses.
- Skipping the card because 'it gets paid in full.' The charges still have to match the statement.
- Starting a new rec when last month's beginning balance is wrong. Fix the old period first.
Frequently asked questions
What is meant by bank reconciliation?
It is the proof that your register and the bank (or card) statement agree on one ending balance, after you list outstanding checks, deposits in transit, and any fees or errors. A matched feed is not that proof.
How do you reconcile a bank account?
Open the month-end statement. Enter that ending balance and date in Reconcile. Check off every cleared line. Add bank-only items (fees, NSF, interest). Leave uncleared items unchecked and named. Finish only at $0.00 and keep the report with the PDF.
What are the 5 or 7 steps to bank reconciliation?
Guides disagree on the count because they split the same work differently. The job is: get the statement, confirm the beginning balance, match cleared lines, record bank-only items, explain uncleared items, and stop at a $0.00 difference with a saved report.
What is an example of bank reconciliation?
Harbor Light's March statement is $8,640. The register is $8,855. An $800 deposit has not hit the bank, a $600 check is outstanding, and a $15 fee is missing from the books. After those three items, both sides equal $8,840. That is a finished rec.
What are the three methods of a bank reconciliation?
Accounting classes name layouts (adjusted balance, bank-to-books, books-to-bank). They are three ways to arrange the same math. In QuickBooks Online or Xero you use one method: the statement ending balance must equal the cleared register.
Is a bank reconciliation hard to do?
Not if you stayed current and last month finished at $0.00. It gets hard when you skip months, mix personal and business cards, or force old differences. Catch-up is a project. Monthly recs are not.
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