# What Is a Bank Reconciliation Statement, and How Is It Done?

> **Definition**
>
> A bank reconciliation statement is a summary of recent banking activity that is used to reconcile personal or business records against the bank's record of transactions.

## What Is a Bank Reconciliation Statement?

A bank reconciliation statement is a summary produced by a bank of a customer's recent banking activity, provided for purposes of comparison with the customer's internal records.

Bank reconciliation statements are used by businesses, auditors, and accountants to detect errors or omissions between their accounting records and their bank account balances.  

### Key Takeaways

*   A bank account reconciliation statement allows you to verify the accuracy of your financial records against your bank statements.
*   Businesses conduct reconciliations once per month, or more frequently if they have a high volume of transactions.
*   To do a bank reconciliation, gather your documents, compare your balances and transactions (from [checking accounts](https://www.investopedia.com/the-best-small-business-bank-accounts-8782069), for example), make adjustments, and reconcile accounts.
*   Keep records of any changes and adjustments you make.

![Bank Reconciliation Statement](https://www.investopedia.com/thmb/HpMG2Jrznn0zDd1Nyda-D51ILE0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Bank_Reconciliation-V3-5c8a5643055c402fb16a4268b449ac0e.png)

*Bank reconciliations helps businesses and individuals detect errors and prevent fraud. — Investopedia / Lara Antal*

## Reasons for Preparing a Bank Reconciliation Statement

A bank [reconciliation](https://www.investopedia.com/ask/answers/041515/why-reconciliation-important-accounting.asp) statement allows companies and auditors to verify the accuracy of financial records and compare these records with bank account balances.

Here are some specific reasons why you might prepare and use a bank reconciliation statement:

*   **Identify and prevent errors**: Cross-referencing your bank account(s) and financial records can help you verify the accuracy of any [checks](https://www.investopedia.com/terms/c/check.asp), deposits, transfers, and other transactions you've authorized and whether they've cleared.
*   **Fraud detection**: Reconciling your accounts can help you identify and report any fraudulent activity, including unauthorized transactions.
*   **Cash control**: You can use your statement to help reconcile your cash accounts and ensure that any cash activity is valid and accurate.
*   **Tracking expenses**: Your statement can help identify how much you pay in monthly bank fees, interest, and other expenses. This helps at tax time and to determine if there are any opportunities for improvement.
*   **Confirming [accounts receivable (AR)](https://www.investopedia.com/terms/a/accountsreceivable.asp)**: A bank reconciliation statement can identify or confirm any outstanding customer debts, allowing you to take action to collect on these accounts.
*   **Improving balance sheet accuracy**: Using a bank reconciliation statement ensures that the amounts recorded on the [balance sheet](https://www.investopedia.com/terms/b/balancesheet.asp) correspond to transactions in your financial account.  
    

## How Often Should You Reconcile Your Bank Account?

How often you reconcile your bank accounts depends entirely on your needs. Individuals and businesses with simple accounting needs should consider reconciling their accounts monthly after receiving a [bank statement](https://www.investopedia.com/terms/b/bank-statement.asp).

Businesses with a higher volume of transactions should consider increasing the frequency of reconciliation—either daily or weekly. Increasing the frequency makes [cash flow](https://www.investopedia.com/terms/c/cashflow.asp) management easier, helps you catch any discrepancies, and gives you enough time to correct errors before any complications arise in your accounting.

## How to Do a Bank Reconciliation

Follow these steps to perform a bank reconciliation.  

### Step 1: Gather Your Documents

To perform a bank reconciliation, gather your financial records, including your bank statement(s) and any internal records. These can include invoices, financial statements from [checking accounts](https://www.investopedia.com/the-best-small-business-bank-accounts-8782069), a general ledger, and cashbooks detailing your financial transactions.  

### Step 2: Compare Your Balances and Activity

Your bank statement and financial records contain your opening and closing balances for the month. Compare the ending cash balance of your bank accounts to your internal financial records.

*   Match your deposits (cash or checks) and credits to your bank account with your accounting records.
*   Match your withdrawals, invoice payments, interest charges, and [bank fees](https://www.investopedia.com/terms/b/bank-fees.asp).
*   Cross-reference the bank statement activity with your accounting records, noting missing transactions or discrepancies, such as a check cleared for an incorrect amount.
*   Watch out for fraudulent items on your bank statement.  
    

### Step 3: Investigate and Record Outstanding Transactions

Investigate any discrepancies. These may be checks, invoices, or deposits recorded in your accounting records that are not reflected on your bank statement, including outstanding checks that have yet to clear your account.

Similarly, identify any transactions in your bank account that are not reflected in your internal records, such as bank fees, interest income, and overdraft fees.

### Step 4: Make Adjustments and Reconcile Your Balances

Make the necessary adjustments to the [bank statement](https://www.investopedia.com/terms/a/account-statement.asp) for errors or missing transactions. For instance, if there's an outstanding check that has yet to be cleared, add it to correct your bank account balance. From there, compare the new, adjusted cash balances of your bank account to your accounting records. If any errors remain, repeat the process.

### Step 5: Keep Records of Your Changes

[Keep your documents](https://www.investopedia.com/ask/answers/090716/how-long-should-you-keep-bank-statements.asp) and records of all of your changes, including source documents and details of the reconcilement and adjustment process. Record descriptions of errors and accounting adjustments so you can easily review this information at a later date. Detailed records can help prevent errors in the future. You may want some of the information for the next account reconciliation.

> **Tip**
>
> Know your bank's policy for reporting and resolving errors or fraud. Some banks limit corrections to within 60 days of an error. Ensure your bank's reconciliation policy gives you enough time to identify, dispute, and resolve an error or report fraud.

## Example of a Bank Reconciliation Statement

Here's a hypothetical example to show how bank reconciliation statements work using a snapshot of Company XYZ's books.

Let's say the company has a $145,000 beginning balance and the following transactions:

1.  A $10,000 payment by check from a client
2.  A $15,000 check issued to a supplier that hasn't cleared the account yet
3.  A cash deposit of $2,500
4.  A correction for an erroneous deposit from the previous month of $3,000
5.  A service charge of $50 from the bank
6.  Interest credited to the account for $100

The company's accountant may complete the reconciliation as follows; parentheses indicate debits from the account, and no parentheses indicates a credit to the account:  

## The Bottom Line

A bank reconciliation statement can help if a company's accounting records show different transactions than its bank statements. Reconciling the bank statement and internal records can identify and correct errors and uncleared transactions. When using a bank reconciliation statement, keep detailed records and notes so you can cross-check your adjustments with those made on future bank statements.  

> **Article Sources**
>
> 1.  FreshBooks. "[How To Do a Bank Reconciliation?](https://www.freshbooks.com/hub/accounting/do-bank-reconciliation)"
>     
> 2.  State of Utah Office of the State Auditor. "[Bank Reconciliation: Brief Explanation](https://resources.auditor.utah.gov/s/article/Bank-Reconciliation)."
>     
> 3.  Office of the Washington State Auditor. "[Best Practices for Bank Reconciliations](https://sao.wa.gov/sites/default/files/2023-05/Best-Practices-for-Bank-Reconciliations.pdf)." Page 2.