Bank reconciliation basics Updated November 2026

Bank reconciliation steps

Start with the bank statement balance, add deposits in transit, subtract outstanding checks and correct any bank errors to get the adjusted bank balance. Then start with the cash book balance, add interest and collections, subtract fees and NSF checks and fix book errors. The two adjusted balances must be equal.

Syntax

Bank balance + Deposits in transit - Outstanding checks = Book balance + Interest + Collections - Fees - NSF checks +/- Book errors

Part	What it is
`Step 1`	Tick off every deposit on the statement against the cash book; unticked book deposits are deposits in transit
`Step 2`	Tick off every check; unticked book checks are outstanding checks
`Step 3`	List statement items not in the books: fees, interest, NSF checks, collections
`Step 4`	Compute both adjusted balances and confirm they match
`Step 5`	Record journal entries for every book-side item; bank-side items need no entry

Examples

Bank statement balance 4,200
Deposit in transit 900
Outstanding check #1045 350
Book balance 4,770
Bank service charge 20

Result: Adjusted bank balance: 4,200 + 900 - 350 = 4,750. Adjusted book balance: 4,770 - 20 = 4,750. Reconciled.

Bank balance 10,000; deposits in transit 2,500; outstanding checks 1,800
Book balance 10,760; interest earned 15; NSF check 75

Result: Bank side: 10,000 + 2,500 - 1,800 = 10,700. Book side: 10,760 + 15 - 75 = 10,700. Reconciled.

Journal entries after the first example:
Dr Bank Service Charges 20 / Cr Cash 20

Result: Cash in the ledger falls from 4,770 to 4,750, the true balance.

Common mistakes

Adjusting the books for deposits in transit: they are already in the books, so they belong on the bank side only.
Forgetting the prior month's outstanding checks: any check still unticked from last month stays on the list until it clears.
Posting entries for bank-side items: outstanding checks and deposits in transit never get a journal entry.
Working from the statement's ending balance but the ledger's current balance: use the book balance as of the same date.

Practice Bank reconciliation steps

These drills check your answer on live data, free, no account needed.

Both kinds of timing differenceClassify every line on the bank statement and in the cash book, then enter the adjusted bank and book balances.
A busy monthClassify every line on the bank statement and in the cash book, then enter the adjusted bank and book balances.
Everything from the bankClassify every line on the bank statement and in the cash book, then enter the adjusted bank and book balances.

Questions

How often should a bank reconciliation be done?

Monthly, when the statement arrives, and before the month is closed. Businesses with heavy volume reconcile weekly or daily from online banking.

What if the adjusted balances do not match?

Check the difference: divisible by 9 suggests a transposition, a round number suggests a missed item, a figure equal to one transaction suggests something posted twice or not at all.

Which balance is the true cash balance?

The adjusted balance (the same figure on both sides). That is what goes on the balance sheet, after the book-side entries are posted.

Bank reconciliation formatThe standard bank reconciliation format: a bank side starting from the statement balance and a book side starting from the ledger, both ending at one figure.
Adjusted bank balanceAdjusted bank balance = statement balance + deposits in transit - outstanding checks, plus or minus bank errors. Worked examples with exact results.
Adjusted book balanceAdjusted book balance = ledger cash + interest + notes collected - service charges - NSF checks, plus or minus book errors. Examples and the matching entries.
Bank reconciliation journal entriesThe journal entries that follow a bank reconciliation, one per book-side item: service charges, interest, NSF checks, notes collected, book errors.