Bookkeeping & payrollBank Reconciliation Process, Step by Step, for People Who Hate Bank Reconciliations

Nobody has ever said, "My favorite part of running a business is the bank reconciliation." If someone did, they'd be gently steered toward a hobby.

And yet. A reconciliation is the one routine that proves your books match reality. It's matching socks out of the dryer: dull, a little satisfying, and the only way to find out that one sock went missing three loads ago.

This guide walks through the bank reconciliation process in plain steps, with a worked example, the usual reasons it won't balance, and a checklist you can follow every month without thinking too hard.

What a bank reconciliation actually checks

Your bank keeps one record of your account. Your accounting software keeps another. They should describe the same money, but they almost never show the same balance on any given day, because of timing. A check you wrote on the 29th might not clear until the 4th. A deposit you made on the 31st might show up on the next statement.

A reconciliation explains every difference between the two. When it's done, you know three things:

1. Every transaction in the bank is in your books.
2. Nothing in your books is missing from the bank (except items still in transit).
3. Nothing was entered twice.

That third point is underrated. Duplicates are a frequent error in small business books, and reconciliation is the main way to catch them.

How to reconcile a bank account in QuickBooks Online, step by step

Here's how to reconcile a bank account using QuickBooks Online. Other software follows the same logic.

1. Get the bank statement for the month (PDF from the bank, not the bank feed).
2. In QuickBooks, open the reconcile tool (Settings gear, then Reconcile) and choose the account.
3. Enter the statement ending date and ending balance exactly as they appear on the statement.
4. Check off every transaction in QuickBooks that also appears on the statement. Payments on one side, deposits on the other.
5. Look at what's left unchecked. Those are either timing items (they'll clear next month) or errors.
6. Look at the statement for anything that isn't in QuickBooks: fees, interest, a payment you forgot. Record those, then check them off.
7. When the difference shows $0.00, click Finish now.
8. Save the reconciliation report with the statement.

Never force step 7. If the difference isn't zero, something is wrong, and an adjusting entry to make it go away just hides the problem for later.

A worked example: one month, three differences

Imagine you run a hypothetical physical therapy clinic. Your March 31 numbers:

• Bank statement ending balance: $57,940
• QuickBooks checking balance: $53,345

They're $4,595 apart. Time to explain it.

Outstanding checks: two checks you wrote in late March haven't cleared yet, $4,200 to your landlord and $2,280 to an equipment supplier. Total $6,480. The bank hasn't subtracted these yet.

Deposit in transit: a $1,850 insurance reimbursement was deposited on March 31 but appears on the April statement.

Unrecorded bank item: a $35 monthly service fee is on the statement but not in QuickBooks.

Now line them up:

• Bank side: $57,940, plus the $1,850 deposit in transit, minus $6,480 in outstanding checks, equals $53,310
• Book side: $53,345, minus the $35 service fee, equals $53,310

Both sides agree at $53,310. You record the $35 fee in QuickBooks, check off the matched items, and the difference shows zero. Done. Coffee.

Why the bank reconciliation won't balance

When the difference won't hit zero, the usual suspects:

• A transaction entered twice, often once by hand and once from the bank feed.
• A transposed number ($540 entered as $450). Tip: if the difference divides evenly by 9, look for a transposition.
• A transaction checked off that isn't actually on the statement.
• A prior month that was changed after it was reconciled, so the beginning balance no longer matches.
• Customer payments sitting in Undeposited Funds instead of being grouped into the actual bank deposit. Our guide to undeposited funds in QuickBooks explains that one.

The fourth one is sneaky. If last month's reconciliation was right and this month's beginning balance is off, someone edited or deleted a reconciled transaction. QuickBooks has a reconciliation history and discrepancy report that can help you find it.

If you're several months behind, reconcile oldest first, one month at a time. Our article on books not reconciled for months covers what tends to turn up when you do.

Your month end reconciliation checklist

Bank accounts are only the start. A solid month end reconciliation covers:

1. Every checking and savings account.
2. Every credit card.
3. Payment processors like Stripe, Square or PayPal.
4. Loans (compare to the lender statement).
5. Payroll liabilities (compare to payroll reports).
6. Any account on the balance sheet with a statement or schedule behind it.

Items 4 through 6 fall under balance sheet reconciliation, which applies the same idea to every account you own or owe.