What is bank reconciliation?

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Bank reconciliation is the process of comparing the cash balance recorded in a company's general ledger against the balance shown on the corresponding bank statement, and explaining every difference between the two until they agree.

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It is one of the oldest and most fundamental controls in accounting — and for most enterprise finance teams, still one of the most labour-intensive parts of the close cycle.

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Why bank reconciliation matters

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A reconciled bank account means your recorded cash position is accurate. An unreconciled bank account means you do not know your true cash position — which affects liquidity decisions, payment planning, and the reliability of every financial statement that includes a cash figure.

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Bank reconciliation also catches fraud, duplicate payments, and bank errors. A payment that appears on the bank statement but not in the GL could be an unauthorised transaction. A payment in the GL that never cleared the bank could be a duplicate entry or a processing error.

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How bank reconciliation works

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Step 1 — Get the statements. Pull the closing balance from the GL cash account and the closing balance from the bank statement for the same period.

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Step 2 — Match transactions. Go through each transaction on the bank statement and find the corresponding entry in the GL. Mark matched items as cleared.

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Step 3 — Identify unmatched items. Items on the bank statement with no GL entry (bank charges, interest, direct debits) and items in the GL with no bank entry (outstanding cheques, deposits in transit) are listed as reconciling items.

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Step 4 — Adjust the GL. Bank charges and other items that appear on the statement but are missing from the GL are posted as journal entries.

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Step 5 — Confirm agreement. Once all reconciling items are accounted for, the adjusted GL balance should equal the bank statement balance. The reconciliation is certified and filed.

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Why it still takes so long

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For businesses with high transaction volumes — retail, e-commerce, subscription businesses — bank reconciliation is complicated by the gap between gross transaction values and net settlement amounts. Payment gateways batch and net transactions before settling to the bank, so a single bank credit can represent hundreds of individual customer payments. Matching at the transaction level requires working back through gateway settlement reports, which adds a layer that most GL systems are not designed to handle automatically.