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. Items on the statement but not yet in the books, such as bank fees, interest, direct debits or a customer's direct deposit, are checked and then entered in the books. Items in the books but not yet on the statement stay unticked and carry forward to the next reconciliation, where they would normally appear soon after.

Reconciling regularly helps identify differences in the recorded bank balance while the transactions are still recent. Each account is reconciled on its own, including credit cards, loan accounts and any account held with a card or online payment provider, and each is reconciled to a fixed statement date and the closing balance shown for it. Changing a transaction that has already been reconciled reopens a difference that was explained, so those changes are worth keeping rare and noting.

A reconciled bank account anchors the rest of the books. The bank balance on the balance sheet, the figures in a cash flow statement and many of the totals in the profit and loss statement all depend on bank transactions being complete and in the right accounts. A reconciliation is also an early warning for a payment nobody authorised, a supplier paid twice, or a customer payment that was not matched to its invoice.

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.

Among its tips for avoiding common record-keeping errors, the ATO lists keeping an accurate record of every cash and electronic transaction, and checking for mistakes when the figures do not add up. business.gov.au notes that online banking lets you see every transaction, which makes debits and credits easier to account for, and that paying regular bills by direct debit or automatic payment can reduce errors.

Worked example

Illustrative example: reconciling the bank balance at 30 June
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.
Ticking an item as reconciled because the amount matches, without checking the date, payee or invoice it belongs to.
Reconciling to the live online balance instead of the closing balance on a statement for a fixed date.
Deleting an old uncleared cheque or deposit to make the reconciliation work, rather than finding out why it has not cleared.

Common questions

What is the difference between a bank reconciliation and a bank statement?

A bank statement is the bank's record of an account: every deposit and withdrawal it processed, with the balance at the end of the period. A bank reconciliation is the business's own check of its records against that statement, usually kept as a short report showing the statement balance, the items not yet cleared and the balance in the books. The statement is evidence from outside the business, and the reconciliation explains how the books relate to it.

How do you prepare a bank reconciliation?

Start with the closing balance on the bank statement for a fixed date. Tick each transaction on the statement against the matching entry in the books, and enter any statement items the books are missing once you have checked them. Then add deposits recorded but not yet on the statement and take away payments not yet cleared. The adjusted figure should equal the book balance, and any gap left is a difference to find, not one to write off.

Why does a bank reconciliation matter in a computerised accounting system?

It is the check that explains any gap between the book balance and the bank statement after the software has done its matching. A bank feed brings transactions in, but someone has to confirm where each one belongs. A feed can drop or repeat transactions, and a payment entered by hand can be recorded twice once the feed brings in the same item. Comparing balances at a fixed statement date shows these gaps, and checking each match against its invoice catches a payment paired with the wrong one.

Related terms

Related service

Bank reconciliations

Each bank, card and loan account reconciled to its statement.

More about bank reconciliations

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.