Monthly Bank Reconciliation, Step by Step

The IRS guide to starting a business and keeping records says you should reconcile your checking account each month. This guide walks through how that is done: first the paper method from that IRS guide, then the same steps in QuickBooks Online, then what to check when the two numbers will not agree, and what happens when a finished month is changed later. It makes no promise about what a reconciliation will turn up; it covers how the work is done.

Moreno Financial Services keeps monthly books for small businesses across Central Texas through our bookkeeping services, starting at $600/mo. Each month we categorize the transactions from your bank, credit card and payment accounts, reconcile those accounts to their statements, and send a profit and loss report plus a balance snapshot written for owners.

Why the statement and the books differ in a normal month

The IRS guide notes that a bank statement may not include deposits made after the statement date, or checks that did not clear the account before the statement date. Those are timing differences: the books recorded the deposit or the check, and the statement had not caught up by the day it was printed. A reconciliation accounts for them rather than treating them as mistakes.

The paper method, from the IRS

Before you reconcile your monthly bank statement, the IRS says to check your own figures, starting from last month's ending checkbook balance, adding the month's deposits and subtracting what was paid out. It also notes that many banks print a reconciliation worksheet on the back of the statement. Then the IRS's steps run in order.

Compare the deposits listed on the bank statement with the deposits shown in your checkbook, and note any differences. Compare each check the bank shows as cleared with your checkbook, note any differences, and mark each one in the checkbook as cleared; after accounting for all of them, those not marked are your outstanding checks. Prepare the reconciliation, then update your checkbook and journals for items shown on it as not recorded, such as service charges, or recorded incorrectly. At that point, the IRS says, the adjusted bank statement balance should equal your adjusted checkbook balance. If you still have differences, check the previous steps to find the errors.

The same steps in QuickBooks Online

Intuit's help articles lay out the software version. Before starting, have the statement ready and make sure that all transactions for the statement period have been added and categorized in QuickBooks. Then enter the ending balance and ending date from the statement, and select the checkbox next to each transaction in the reconciliation window that matches a transaction on the statement.

When the difference reaches zero, the account is balanced. If it isn't, Edit info lets you adjust the ending balance or ending date. After finishing, QuickBooks saves a reconciliation report, which can be viewed again later by account in the reconciliation history.

When it will not balance

Intuit lists causes of a reconciliation that will not balance: someone entered an incorrect ending balance at the start, someone entered transactions that haven't cleared the bank yet, or there are missing or duplicate transactions in QuickBooks. Intuit's article walks through a fix for each, linked below.

One cause starts in the bank feed. Intuit says a personal expense that lands in a business feed should be added rather than excluded, because otherwise the bank account in QuickBooks won't match the bank statement when you reconcile it. How the feed side works is covered in our guide to bank feeds and spreadsheets.

After a month is closed

A reconciled month can still change. Intuit says that when a reconciled transaction is edited, deleted, voided, moved or unreconciled, it changes the last ending balance and the next beginning balance. QuickBooks has the Reconcile Discrepancy Report for that case, which lists what changed, how it affected your balance, and what you can do to fix each item. Keeping each month's reconciliation report with that month's statement leaves a record to compare against.

A reconciliation, step by step

For each account, each month:

• Have the statement and last month's ending balance in hand
• Check that every transaction for the period is entered and categorized
• Match each deposit on the statement to the books
• Match each cleared check and payment, and list what has not cleared
• Record anything the statement shows that the books missed or got wrong
• Confirm the adjusted balances agree, or go back through the steps
• Save the reconciliation report with that month's statement

Which accounts, and where we fit

Checking is where the IRS guide starts. Our monthly books reconcile bank, credit card and payment accounts to their statements, with ongoing reconciliation and questions answered year-round. For the monthly rhythm around it, see our guide to year-round bookkeeping, or book a free 15-minute call, and we will tell you honestly whether we can help.