A bank reconciliation matches every deposit and withdrawal on the bank statement to the books, then explains the difference between the two balances. The difference should be only timing items: deposits in transit (recorded, not yet on the statement) and outstanding checks (written, not yet cleared). Book balance = statement balance + deposits in transit − outstanding checks.
Why it matters
Cash is the one number nobody argues with. An unreconciled account hides errors, duplicate payments and fraud, and banks and auditors expect every account reconciled monthly.
Worked example
Statement balance $2,418,220.40; deposits in transit $412,000.00; outstanding checks $385,659.67. The book balance should be $2,444,560.73. If it isn’t, find the item before closing the month (sample data).
Common mistakes
- Forcing the difference with an adjustment instead of finding it.
- Leaving stale outstanding checks for months.
- Voiding a check that already cleared.
How os.construction handles it
In the accounting preview, statement lines are matched in an inbox with suggestions and bank rules, and a reconciliation can only finish at a zero difference or with an adjustment entry. See Banking and reconciliation.