What is a bank reconciliation?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
A bank reconciliation compares the transactions recorded in a business's books with the transactions on its bank statement, then explains or corrects every difference. When it is finished, the balance in the books agrees with the bank's balance, allowing for any items that have not yet cleared the bank.
Differences usually come from timing, such as a payment that has been recorded but has not yet cleared the bank, or from entries that are missing, duplicated or recorded against the wrong account.
Reconciling regularly helps identify differences in the recorded bank balance while the transactions are still recent.
In Australia
The ATO's record-keeping tips suggest reconciling cash and EFTPOS sales regularly, by checking that the payments recorded in your own records match external records, and entering the amounts into your main accounting software. Depending on the business, that may be daily, weekly or monthly.
business.gov.au says that if you use one bank account for both personal and business banking, you must clearly identify any personal payments or expenses in your cash book. Those are entries a reconciliation of a shared account has to separate out.
Worked example
| Item | Amount (AUD) |
|---|---|
| Balance on the bank statement | 12,480.00 |
| Add: deposit recorded but not yet on the statement | 1,250.00 |
| Less: payment recorded but not yet cleared | 640.00 |
| Balance in the books | 13,090.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Forcing the two balances to agree with an adjusting entry instead of finding the difference.
- Leaving uncleared items unchecked for months, when they may be errors rather than timing.
Related terms
Sources
- Record-keeping tips
Australian Taxation Office. Current at 25 October 2022 (QC70730), released 25 October 2022. Checked 15 October 2026.
© Australian Taxation Office for the Commonwealth of Australia Licence: ATO website copyright notice (copy, adapt and distribute, without implying ATO endorsement).
- Set up your business bank account
business.gov.au, Australian Government. Current at 15 October 2026, released 11 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.