How to Reconcile a Business Bank Account Each Month

Bank reconciliation compares the transactions and balance in your accounting records with a bank statement for the same account and period. It helps uncover missing entries, duplicate transactions, fees, timing differences, and potential errors before they flow into reports.

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What is a bank reconciliation?

A bank statement and your books may show different balances even when both are accurate at a point in time. A check issued but not yet cleared, for example, appears in the books before the bank processes it. Reconciliation explains those timing differences and identifies entries that need correction. The IRS recommends reconciling checking accounts each month in Publication 583, Starting a Business and Keeping Records.

Before you start: gather the right records

• The complete bank statement for the month, including its beginning and ending balances.
• The accounting ledger or transaction register for the same bank account and period.
• Prior-month reconciliation and its outstanding checks and deposits.
• Deposit records, invoices, payment confirmations, and receipts needed to investigate exceptions.

Reconcile each bank account separately. Include business credit cards and payment processors in the broader close using their appropriate statements and settlement reports; a bank deposit alone may not explain gross sales, fees, refunds, and transfers.

A seven-step monthly reconciliation checklist

1. Confirm the opening position. Start with the prior reconciliation and verify that its adjusted closing balance carries forward correctly. Investigate any unexplained change to a previously reconciled period rather than forcing a new adjustment.
2. Match deposits. Compare statement credits with recorded customer receipts, transfers, owner contributions, loan proceeds, and other deposits. Identify the source of each receipt; not every deposit is revenue.
3. Match withdrawals. Compare payments, transfers, payroll withdrawals, fees, and card settlements with the ledger. Check payee, amount, and date. A payment can have a valid bank entry but still be classified incorrectly.
4. Identify outstanding items. List checks or deposits recorded in the books but not yet reflected by the bank at statement end. Check whether older items cleared subsequently and investigate stale items rather than carrying them indefinitely.
5. Record legitimate missing transactions. Enter bank charges, interest, and other verified transactions absent from the books, with appropriate descriptions and supporting records. Do not create a miscellaneous adjustment merely to make balances agree.
6. Investigate exceptions. Look for duplicates, incorrect amounts, unrecognized withdrawals, missing deposits, and transfers recorded on only one side. Escalate suspected unauthorized activity promptly to the bank using an independently verified contact channel.
7. Complete and review the reconciliation. Confirm that the adjusted statement balance equals the adjusted book balance. Save the statement, reconciliation report, outstanding-item list, and explanations for material corrections. Have another authorized person review where practical.

Worked example: timing difference versus missing expense

Illustrative example, not a client result: a bank statement ends at $12,400. The business deposited $1,000 on the last day of the month that did not appear on the statement, and an issued $600 check had not cleared. The adjusted bank balance is $12,400 + $1,000 − $600 = $12,800. If the ledger shows $12,825 because a $25 bank fee has not been recorded, entering the verified fee brings the adjusted book balance to $12,800.

The $1,000 deposit and $600 check are timing differences, not additional income or expenses to record a second time. The $25 fee is a missing book transaction supported by the statement. This distinction prevents a reconciliation from creating duplicate activity.

What if the balances still do not agree?

Compare the difference against individual transaction amounts, check the statement cutoff dates, and revisit the prior month's outstanding items. Look for transposed digits, duplicated imports, a transaction posted to the wrong bank account, or an opening-balance change. Keep the unresolved difference visible and assign it for follow-up; an unexplained plug entry hides the issue rather than resolving it.

What should an owner review after reconciliation?

Ask whether every account was reconciled through the same month, whether any old outstanding items remain, whether unusual payments were explained, and whether the cash balance in reports reflects completed reconciliations. Reconciliation checks recorded cash activity; it does not by itself confirm that every expense was authorized or that every invoice was collected. Pair it with a review of receivables, payables approvals, and a cash forecast.

Make it a recurring close task

Assign an owner, a target completion date, and a reviewer for each account. Keep a short exceptions log with the issue, responsible person, next action, and resolution date. The IRS explains that records should show income and expenses and retain supporting documents such as invoices, receipts, and payment records in its small-business recordkeeping guidance. Build a process that is consistent enough to repeat and clear enough for someone else to review.