Bank reconciliation: what it is and how to do one, with an example

What is a bank reconciliation?

A bank reconciliation compares the balance on your bank statement with the bank balance in your books on the same date, and explains every difference between them. Each difference is either a timing item, such as a payment that hasn’t cleared yet, or a mistake or omission you correct in the books. Once that is done, the two figures agree. The schedule that shows it is the bank reconciliation statement.

Reconciliation in general means proving that two records of the same balance agree. Account reconciliation applies that to any balance sheet account: VAT to the VAT return, a loan to the lender’s statement, a supplier’s balance to its statement. The bank comes first because the bank keeps an independent record and sends it every day.

Why it matters at month end

Cash is the one figure in the accounts you can check against someone else’s record. If the bank doesn’t reconcile, the figures that depend on it can’t be trusted either: profit, VAT, what customers owe and what is owed to suppliers. A reconciliation catches:

• payments and receipts never recorded, or recorded twice
• receipts posted to the wrong customer, so debtors look worse than they are
• bank charges, interest and direct debits nobody entered
• payments the business didn’t expect or authorise

That is why reconciling the bank is the first step of the month-end close, before the management accounts go out.

How to do a bank reconciliation

1. Take the bank statement to the last day of the period, and the bank account’s balance in the ledger on the same date.
2. Tick each statement line against an entry in the books. Dates can differ by a few days; amounts must agree.
3. Post anything on the statement that isn’t in the books, such as bank charges, interest or a direct debit. This gives the corrected ledger balance.
4. List what is in the books but not on the statement yet: uncleared lodgements (money paid in that the bank hasn’t credited) and unpresented payments (cheques or payment runs that haven’t left the account).
5. Start from the statement balance, add uncleared lodgements and take off unpresented payments. The result should equal the corrected ledger balance.
6. Investigate anything left over. Timing items should clear in the first days of next month; one still open after a month is probably an error.

Bank reconciliation example

Initech Consulting Ltd, the fictional consultancy from our management accounts example, reconciles its Lloyds Business Account at 30 September 2026. The statement shows £120,609.94; the ledger shows £118,268.44. Ticking the statement off against the books finds a £8.50 service charge nobody posted, a customer cheque paid in on the last day and two payments that haven’t left the account.

Both sides come to £118,259.94, the cash figure in Initech’s September management accounts. The service charge is posted to bank charges. The cheque and the two payments are timing items: they need no journal, and should appear on the statement in the first week of October.

Common reasons the bank doesn’t reconcile

• Timing. Uncleared lodgements and unpresented payments clear by themselves. List them; don’t post them.
• Bank fees and interest. Only the bank knows about them until you post them.
• Transfers between accounts. Money moved to a savings account or credit card shows in both accounts, sometimes on different days. Record it once, as a transfer, not as income in one and a cost in the other.
• Part payments. A customer pays £1,000 of a £2,400 invoice. Match the receipt to the invoice and leave £1,400 outstanding. One payment can also settle several invoices.
• Foreign currency. A euro invoice booked at one rate and paid at another leaves a small difference in pounds. That is a realised exchange gain or loss, not an error.
• Errors. Duplicates, entries in the wrong bank account and transposed digits: if the difference divides exactly by 9, look for £1,890 entered as £1,980.

How often should you reconcile?

At least monthly, and always before a VAT return or management accounts. Weekly or daily suits a business with many transactions or tight cash: fewer lines at a time, and people still remember what each payment was. With a bank feed, lines arrive every day, so the work can be done little and often rather than all at month end.

Supplier statements

The same check works for what you owe. Compare the balance on a supplier’s statement with that supplier’s balance in your purchase ledger, and explain the difference: usually a missing invoice, a duplicate or a payment the supplier hasn’t allocated yet. Our supplier statement reconciliation guide works through an example.

Bank reconciliation in Briefcase Ledger

In Briefcase Ledger, bank lines arrive by open banking from 80 UK banks and providers, and Stripe has its own connector, with fees on their own lines. Each line arrives with a suggested match, and the page shows the statement balance, the ledger balance and whether they agree.

Briefcase scores each candidate invoice or bill on amount and date and checks it against how similar lines were handled before, so there are no bank rules to set up or maintain. With Autopilot on, confident matches reconcile by themselves. Matching covers transfers between your own accounts, part payments and payments on account, refunds and exchange differences on foreign-currency invoices.

Lines with no paperwork, like the service charge above, are coded by AI to a contact, category and VAT rate. When similar lines usually had an invoice, Briefcase asks for the invoice instead, and you can request it from the client. Supplier statements have their own inbox, where Briefcase matches each line to the invoices already in Briefcase. At month end, working papers hold the balance sheet reconciliations, with sign-off and a lock date.