How to reconcile a bank account: a step-by-step guide for small businesses

Bank reconciliation is the single most valuable habit in bookkeeping. It is how you prove that your records are right. If your books say you have £8,412 in the bank and the statement says £8,412, the chances are very high that your recording is accurate. If they differ by £37.50, something is wrong, and it is far easier to find it this month than next year.

This guide explains exactly how to reconcile a bank account, what to do when it does not agree and how to make the job quick.

What reconciliation means

Your accounting software holds a record of every transaction. Your bank holds its own record. Reconciliation is the act of checking that both records say the same thing. Every line on the bank statement should correspond to a recorded transaction, and every recorded bank transaction should appear on the statement. When they agree, the account is reconciled.

Why it matters

• It catches errors. Duplicated entries, wrong amounts and missed transactions all show up as differences.
• It catches fraud and mistakes. Unrecognised payments are visible straight away.
• It makes reports reliable. Profit and loss, VAT and cash flow all depend on correct bank data.
• It supports tax filing. Accurate records mean accurate VAT returns and tax calculations. See our VAT guide.
• It saves money at year-end. A reconciled file means less accountancy time.

The terms you need

Opening balance. The balance at the start of the period, which should equal the previous period's closing balance.

Closing balance. The balance at the end of the period on the statement.

Unreconciled items. Transactions in either record that have not yet been matched.

Timing differences. Payments that appear in your books on one date and clear the bank on another, such as a cheque.

Step-by-step reconciliation

Step 1: Get the bank statement

Use the statement for the period you are reconciling, ideally to a month end. If you use bank feeds, the transactions will already be in your software.

Step 2: Check the opening balance

Confirm your software's opening balance for the period equals the statement's opening balance. If it does not, the previous period was not properly reconciled and you must fix that first.

Step 3: Match each transaction

Go through the statement line by line. For each line, match it to a recorded transaction: a sales invoice payment, a supplier bill, an expense or a transfer. Modern software suggests matches automatically. Review each suggestion rather than clicking accept blindly.

Step 4: Create entries for anything missing

If a statement line has no matching record, create one. A card payment you forgot to enter, bank charges, interest, a customer payment you did not know about. Code each carefully and attach the receipt where relevant. See how to keep receipts for HMRC.

Step 5: Investigate anything in the books but not on the statement

If your records contain a bank transaction that does not appear on the statement, there are a few possibilities. It may be a timing difference, such as a cheque not yet cleared. It may be entered in the wrong account. Or it may be a duplicate. Investigate before deleting.

Step 6: Check the closing balance

When every item is matched, your software's closing balance should equal the statement's closing balance. If it does, mark the period as reconciled.

Step 7: Review and lock

Run a quick check of the reconciliation report. Note any unusual items, and if your software allows it, lock the period so earlier months cannot be changed accidentally.

A worked example

Your statement for October shows a closing balance of £6,820.40. Your software shows £6,857.90, a difference of £37.50.

You go through the statement and find that every line matches except a bank charge of £37.50 on 29 October, which you had not recorded. You enter it as a bank charge, matching the line. The software's balance becomes £6,820.40, matching the statement. The account is reconciled.

If the difference had been £15.00 and you could not find a missing item, you would look for transposed digits, such as £51.00 entered as £15.00. A difference divisible by nine often signals transposed digits.

Common causes of differences

Cause	How to spot it
Missing bank charges or interest	Small unmatched statement lines
Duplicated entries	Two identical transactions in your books
Transposed digits	Difference divisible by 9
Wrong date or period	Item appears in an adjacent month
Payment to wrong account	Transaction recorded against another bank
Uncleared cheques	Entry in books, not yet on statement
Opening balance error	Difference present from the start of the period

How often to reconcile

At least monthly. Weekly is better for businesses with high volumes, and daily for those with heavy cash handling. Reconciling in small chunks makes each session quick and keeps the books current, which matters more under Making Tax Digital because quarterly updates rely on up-to-date records. See our Making Tax Digital guide.

Other accounts to reconcile

Do not stop at the current account. Reconcile every account that holds money or debt:

• Savings accounts
• Business credit cards
• Loan accounts
• PayPal, Stripe, Square and other payment processors
• Amazon, eBay, Etsy and Shopify payouts

Marketplace payouts are particularly tricky because they are net of fees and refunds, so each payout needs splitting back into sales, fees and adjustments. See bookkeeping for e-commerce sellers.

Tips for faster reconciliation

• Use bank feeds. Automatic imports eliminate manual entry.
• Create bank rules for repeating transactions, such as a monthly software subscription.
• Attach receipts as you go.
• Clear the list weekly so it never builds up.
• Do not force a match. If a transaction does not fit, investigate.
• Keep personal and business separate. Mixed accounts multiply the work.

When reconciliation will not agree

If you have searched thoroughly and cannot find the difference, do not post a "balancing figure" and move on. Unexplained plugs hide real errors, and they compound. Instead, narrow down the period: reconcile week by week to find where the difference appears. If it is old and small, document it and get advice. If it is large or recurring, get help. Our bank reconciliation service and bookkeeping clean-up exist for exactly this.

A reconciliation checklist to keep by your desk

Before you start: confirm the statement period and the opening balance. During: match every line, create entries for anything missing, and investigate anything unmatched. At the end: confirm the closing balances agree, note any timing differences such as uncleared cheques, and save or lock the reconciliation. If it does not agree, narrow the period down to the week or day where the difference first appears, because a single difference is far easier to find than a pile of them. Repeat the process for every account, including credit cards and payment platforms, and it becomes a calm, fifteen-minute monthly job.

Frequently asked questions

What is the difference between reconciling and matching?

Matching links individual transactions between your books and the bank. Reconciling is the overall process of confirming the balances agree after all items are matched.

Do I need to reconcile if I use bank feeds?

Yes. Feeds import transactions but do not verify that nothing is missing or duplicated. You still confirm the closing balance agrees with the statement.

How long does a reconciliation take?

For a small business with automated feeds, 15 to 30 minutes a month. Messy files take longer.

What if I find an error from a previous year?

Correct it with an adjusting entry dated in the current period, and tell your accountant if it affects a filed return.

Can you reconcile my accounts for me?

Yes. We reconcile every account monthly and explain any exceptions. Get an instant quote.