Bank Reconciliation
Definition
Matching every transaction in your books to your bank statement so the two balances agree. Differences point to missing, duplicated or wrong entries.
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Formula
Book Balance ± Timing Items (deposits in transit, uncleared checks) = Bank Statement BalanceReconciling the bank is the foundation of trustworthy books. If the bank does not reconcile, nothing built on top of it, including profit, cash flow or taxes, can be fully trusted.
It should be done monthly for every bank and credit card account as part of the close. Watch for: old uncleared items sitting on the reconciliation for months, which are usually errors, not timing.
Example
Your books show $48,300 and the bank shows $51,100. A $2,800 check written on the 30th has not cleared yet, so the two reconcile.