What is a bank reconciliation?
The monthly match of book cash to the bank statement, explaining every difference. Timing items stay on the worksheet. Missed bank activity is recorded later.
Definition
A bank reconciliation is the work of lining up cash on the books with cash on the bank's period record and explaining every gap. In books-language, it is a matching worksheet, not a journal and not a separate account.
The books and the bank both track cash, and they often disagree for ordinary timing. The worksheet proves the cash line by listing those gaps until the two totals agree.
Where it shows up
Balance Sheet: Related to the cash balance the reconciliation proves.
Cash flow: Related to proving the cash that actually moved.
P&L: Related to nothing extra unless a later correction hits income or expense.
See also: Bank Statement · Account Reconciliation · Month-End Close
When you look at the Balance Sheet, cash sits in current assets. The reconciling worksheet is how you prove that cash line against an independent bank record.
A high book balance that the bank cannot support is a warning. A tidy match means book cash is ready to report.
The Income Statement usually does not move during the match itself. A later correction, such as an unrecorded bank fee, can hit expense after the worksheet finds it.
On the Statement of Cash Flows, the point is to prove the cash that actually moved. Timing items explain why the books and the bank still disagree at period end.
You will not find the worksheet as its own statement line. It is workpaper support that sits behind the cash balance and behind month-end close.
How it works
You start with the bank's ending balance and with cash on the books. Those two numbers rarely match on the first pass.
Next you list deposits the books recorded that the bank has not posted. You add those deposits in transit to the bank total.
Then you list checks the books recorded that the bank has not paid. You subtract those outstanding checks from the bank total.
You also look for items the bank posted that the books missed. Bank fees, interest, and unexpected charges belong on the books, not as timing on the bank side.
After those adjustments, the two cash figures should agree. If they do not, the leftover is a discrepancy to investigate, not a number to force.
The worksheet itself is not a journal. Later correcting entries, if needed, sit on other pages once you know what the bank recorded and the books omitted.
Do the match every month, and keep the lists. Last month's outstanding checks should clear or remain listed; items that never clear need follow-up.
A bank feed can speed the line-by-line compare. It does not replace the worksheet, because imported lines still have to be matched and explained.
Example
A florist opens July's books and July's bank record. Book cash shows $12,400, and the bank shows $13,100.
Friday's $1,200 bakery check is still outstanding. A $500 night-slot deposit from July 31 is still in transit.
The owner subtracts $1,200 and adds $500 to the bank total. Adjusted bank cash is $12,400, which matches the books.
No journal is made for the outstanding check or the deposit in transit. They are timing items on the worksheet.
If the bank had also taken a $15 service charge that the books missed, that amount would not be a timing item. It would be a later correcting entry on another page.
Once the two totals agree, July cash is proved. The florist can close the month knowing the cash line is supported.
Common mix-ups
A bank reconciliation is not the bank's period record. The bank record is the independent source; the worksheet is the match against the books.
A bank reconciliation is not a journal entry. Timing items stay on the worksheet; only missed bank activity later hits the books.
A bank reconciliation is not the same as proving every other account. It is the cash version of that larger proof, focused on book cash versus the bank.
Do not change book cash just to match the bank on the first pass. Explain every difference first, then record only what the books actually missed.
Related terms
- Bank Statement: The bank's period record of every transaction and the ending balance.
- Outstanding Check: A check written but not yet cleared by the bank.
- Deposit In Transit: A deposit recorded on the books but not yet showing on the bank statement.
- Reconciliation Discrepancy: An unexplained difference left after a reconciliation is attempted.
- Operating Bank Account: The main checking account through which day-to-day receipts and payments flow.
- Account Reconciliation: Proving that a ledger balance agrees to independent support.
- Month-End Close: The monthly version of the close, ending in issued financial statements.
- Bank Feed: The automatic import of bank transactions into the accounting records.