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Bank reconciliation is the check that compares the transactions recorded in a company’s accounts with those on its bank statement for the same period. It lets you explain every difference, correct errors and know your true cash balance. The result is set out in a bank reconciliation statement.
Key takeaways
- Bank reconciliation should be done at least monthly, account by account.
- Differences mostly come from items in transit, bank charges and data-entry errors.
- The reconciliation statement proves that the adjusted bank balance and the adjusted ledger balance agree.
What is bank reconciliation?
Every cash entry in the accounts corresponds to a movement at the bank. Bank reconciliation checks that match, line by line, between the bank ledger account (account 512 “Bank” in the French chart of accounts) and the statement sent by the bank. In practice, it means:
- checking that every receipt and payment is recorded on both sides;
- identifying the differences: uncashed cheques, bank charges, delayed transfers;
- correcting errors, in the accounts or, more rarely, with the bank.
It should not be confused with account matching (lettrage comptable in French), which links payments to invoices in the customer and supplier accounts.
Why is bank reconciliation essential?
- Make the accounts reliable. French commercial law requires accounts that are regular and fair; statutory auditors routinely check reconciliations.
- Detect errors and fraud. A duplicate payment, a forgotten transfer, an unauthorised direct debit or a diversion of funds all show up in the differences.
- Know your real cash position. Today’s bank balance ignores cheques you have issued but that have not yet cleared; reconciliation gives you the true position.
- Prepare the year-end close. Up-to-date reconciliations speed up the closing of the accounts and make the audit easier.
How to do a bank reconciliation: the 6-step method
- Gather the documents. The bank statement for the period, the general ledger for the bank account, and supporting documents (invoices, transfer orders, cheque paying-in slips).
- Start from the last reconciliation statement. Unresolved items from the previous month should be ticked off first.
- Tick off the matching items. Mark every movement that appears on both the statement and in the accounts, for the same amount.
- Identify the differences. Items in transit, bank fees and commissions, overdraft interest, data-entry errors, unknown transactions.
- Post adjusting entries. Record in the accounts the fees and direct debits found on the statement, and correct any errors.
- Prepare the reconciliation statement. It shows that the two adjusted balances are equal and keeps a list of the items still outstanding.
Bank reconciliation statement example
At the end of March, the statement shows a credit balance of €12,450 and the accounts show a debit balance of €12,120 on account 512. Ticking off the items reveals four differences:
| Bank side | Amount | Accounting side | Amount |
|---|---|---|---|
| Statement balance | €12,450 | Account 512 balance | €12,120 |
| Supplier cheque issued, not yet cleared | − €1,200 | Bank charges not yet recorded | − €45 |
| Customer cheques paid in, not yet credited | + €800 | Insurance direct debit not yet recorded | − €25 |
| Adjusted bank balance | €12,050 | Adjusted ledger balance | €12,050 |
The two adjusted balances are equal, so the reconciliation is correct. The charges and the direct debit are recorded in the accounts; the cheque and the paying-in remain outstanding and will be ticked off the following month.
Good to know. An outstanding item that drags on for more than two or three months deserves an investigation: a lost cheque, a receipt allocated to the wrong account or a fraudulent transaction.
How often should you reconcile your bank accounts?
Monthly is the minimum. Companies that process a lot of transactions, such as retailers, e-commerce businesses and multi-site groups, do it weekly or even daily. The more often you reconcile, the easier it is to explain the differences.
Reconcile your accounts without spending your days on itAutomated bank reconciliation handles the bulk of your entries for you.
Discover the solutionManual or automated reconciliation?
Manual reconciliation in a spreadsheet is still workable for a few dozen transactions a month. Beyond that, it becomes slow, error-prone and hard to audit. Bank reconciliation software imports statements and ledger entries automatically, matches them using rules you configure and leaves the accountant with only the exceptions.
Frequently asked questions about bank reconciliation
How often should you do a bank reconciliation?
At least once a month, for each bank account. Companies with a high volume of transactions do it every week or every day.
What is a bank reconciliation statement?
It is the document that sets out the bank balance and the ledger balance, the differences between them and the adjusted balances, which must be equal. It is kept as supporting evidence for the year-end close and the audit.
Who is responsible for bank reconciliation?
The accountant or accounting department carries it out; the treasurer uses it to make their cash position reliable. In small businesses, it is often handed to the external accountant.
- Autorité des normes comptables — French general chart of accounts (in French)
- economie.gouv.fr — practical guides from the French Ministry of the Economy for businesses (in French)
Director of Sales at E-Finances, a French financial software publisher for more than 25 years.
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