How to reconcile a bank statement: steps, formula, and a worked example

What a bank reconciliation shows

Your bank and your books record the same money, but rarely at the same moment. You write a check today; the bank removes the money when the payee deposits it. The bank deducts a monthly fee; you learn about it when you read the statement. A bank reconciliation is the document that lists those differences, on one date, until both balances agree.

Accounting textbooks group the causes into a short list: outstanding checks, deposits in transit, bank service fees and returned (NSF) items, interest or collections the bank added, and errors made by either the business or the bank. Every difference you find should belong to one of those groups. If a difference fits none of them, it is not explained yet.

Reconciling regularly is a control, not just tidying. It catches missing entries, duplicate payments, unexpected charges, and fraud while the evidence is recent. Many businesses reconcile each account when the monthly statement closes, and busier accounts more often.

The bank reconciliation formula

Work on two sides at once. The bank side starts with the statement ending balance and adds what the bank does not know about yet. The book side starts with your ledger balance and adds what you did not know about yet. Only items on the book side need a new journal entry, because the bank will record its own timing items when they clear.

• Adjusted bank balance = statement ending balance + deposits in transit − outstanding checks and payments ± bank errors
• Adjusted book balance = book balance + interest and bank collections − service fees − returned (NSF) items ± your posting errors
• The reconciliation is complete when the two adjusted balances are equal and every adjustment is explained

A worked example

Suppose the statement for a checking account ends on 31 March with a balance of 8,420.00, and your books show 7,589.50 on the same date. Matching the lines leaves five items unticked.

On the bank side, a 1,250.00 deposit made on 31 March is not on the statement yet, and check 1043 for 2,100.00 has not cleared. The adjusted bank balance is 8,420.00 + 1,250.00 − 2,100.00 = 7,570.00.

On the book side, the statement shows 4.50 of interest and a 15.00 service fee you had not recorded, and check 1039 cleared for 321.00 although you entered it as 312.00, so your books are overstated by 9.00. The adjusted book balance is 7,589.50 + 4.50 − 15.00 − 9.00 = 7,570.00. Both sides agree, so you post the interest, the fee, and the 9.00 correction, and carry the deposit in transit and check 1043 forward to next month.

When the difference will not go away

Start by recomputing the totals, then look at the size of the difference. Its amount often points to the cause. Do not post a plug entry to force agreement; a small leftover difference can be two larger mistakes that partly cancel.

• The difference equals one transaction: an entry is missing or duplicated on one side
• The difference is twice a transaction: an amount was entered with the wrong sign, as a deposit instead of a payment or the reverse
• The difference divides evenly by 9: look for transposed digits, such as 321.00 entered as 312.00
• The opening balances already disagree: an earlier reconciliation is wrong or an entry in a closed period was changed
• A deposit appears as one line on the statement but as several receipts in your books: add the receipts and match the total

When the statement is only a PDF

Matching is much faster when the statement is a table you can sort and filter. Many banks offer a CSV download of recent activity. For older periods, closed accounts, or statements that clients send as PDFs, you may need to turn the PDF into rows first.

Fulla Ledger drafts transaction rows from text, scanned, mixed, or password-protected statement PDFs. You review each row beside its source page, correct, split, or merge where needed, and approve a saved revision before exporting CSV, XLSX, or OFX. The Bank statement reconciliation checklist guide covers how to check those extracted rows against the statement itself before approval, and the free bank statement balance checker tests opening balance plus money in minus money out against the closing balance.

Keep the two jobs separate. Approving rows in Fulla confirms that the rows match the statement. It does not reconcile your ledger: Fulla does not connect to your accounting system, so the comparison with your books happens in your spreadsheet or accounting software.

Can reconciliation be automated?

Accounting software that receives bank transactions, through a bank connection or an uploaded statement file, can suggest matches between bank lines and recorded entries and show a running difference. That removes most of the ticking, but a person still decides what an unmatched item is, records bank-only items, and signs off. Automation helps most when the transactions it starts from are complete and correct, so check the imported statement data before you rely on the suggested matches.

Separate a statement check from ledger reconciliation

Opening balance plus signed transaction movement should explain the statement’s closing balance. The fictional sample gives you inspectable rows for that arithmetic. A matching total does not prove that every row is complete: an omitted credit and debit of equal size can cancel out.

Reconciling against an external ledger also requires checking items such as outstanding payments, deposits in transit and entries recorded in only one system. Fulla helps review the statement data; it does not perform that external-ledger comparison or decide the required accounting entries.