What Is Bank Reconciliation?
Bank reconciliation is the process of matching the cash balance in your bookkeeping records to the cash balance shown on the bank statement. If they don't match, something is wrong — and it's your job to find out what. This is the single most important control a bookkeeper performs.
Why It Matters
Bank reconciliation catches errors, fraud, and missing transactions before they become bigger problems. Here's what you're looking for each month:
- Errors: You might have recorded a deposit as ₱5,000 when the bank shows ₱500. Or you might have entered a check twice.
- Missing transactions: Bank fees, interest income, NSF (bounced) checks — the bank knows about these, but your books might not yet.
- Fraud detection: If a check cleared for a different amount than you wrote, or a withdrawal appears that you didn't record, reconciliation is where you'll catch it.
- Accurate financials: If the cash account is wrong, every financial statement is wrong. Reconciliation ensures your cash balance is exact.
The reconciliation goal
Adjusted Book Balance = Adjusted Bank Balance. When these two numbers match, the reconciliation is complete. If they don't, keep looking.
Step-by-Step Process
- Get the bank statement and your ledger.
Download the bank statement for the period. Open your Cash account in the general ledger (or QBO's reconciliation screen). Make sure you're reconciling the correct account and the correct period.
- Match deposits first.
Go through every deposit on the bank statement and find it in your books. Check the amounts match exactly. If a deposit is on the bank statement but not in your books, record it. If it's in your books but not on the bank statement, it's a deposit in transit (you recorded it but the bank hasn't processed it yet).
- Match withdrawals and payments.
Go through every withdrawal, check, and electronic payment on the bank statement. Find each one in your books. If a payment is on the bank statement but not in your books, record it. If it's in your books but not on the bank statement, it's an outstanding check or payment (you recorded it but it hasn't cleared the bank yet).
- Check for bank-only transactions.
Look for items on the bank statement that you didn't record: bank service charges, monthly maintenance fees, ATM fees, interest earned, NSF fees. These need to be journal entries in your books.
- Check for book-only transactions.
Look for items in your books that aren't on the bank statement: deposits in transit, outstanding checks. These are legitimate — they just haven't cleared yet. List them as reconciling items.
- Record adjustments to your books.
Create journal entries for any bank-only items you found: bank fees (debit Bank Fees Expense, credit Cash), interest earned (debit Cash, credit Interest Income), NSF checks (debit Accounts Receivable, credit Cash — the customer's check bounced, so they owe you again).
- Build the reconciliation summary.
Start with the bank statement ending balance, add deposits in transit, subtract outstanding checks, and arrive at the adjusted bank balance. Then start with your book balance, add interest earned, subtract bank fees and NSF checks, and arrive at the adjusted book balance.
- Confirm they match.
If adjusted bank balance equals adjusted book balance, you're done. If not, go back and recheck. Common culprits: a transposed digit (₱1,200 entered as ₱2,100), a missed transaction, or a check that cleared for a different amount than recorded.
Common Discrepancies
| Discrepancy | What It Is | How to Handle |
|---|---|---|
| Outstanding Checks | Checks you've written and recorded but haven't cleared the bank yet | List as a reconciling item — subtract from bank balance |
| Deposits in Transit | Deposits you've recorded but the bank hasn't processed yet | List as a reconciling item — add to bank balance |
| Bank Fees | Service charges the bank deducted automatically | Record a journal entry — debit Expense, credit Cash |
| NSF Checks | A customer's check bounced — the bank reversed the deposit | Record a journal entry — debit A/R, credit Cash |
| Interest Earned | Interest the bank paid on the account | Record a journal entry — debit Cash, credit Interest Income |
| Transposition Error | You entered ₱910 as ₱190 (digits swapped) | Correct the entry in your books — difference is always divisible by 9 |
The rule of 9
If the difference between your books and the bank is divisible by 9, it's almost certainly a transposition error (e.g., ₱1,800 entered as ₱8,100 — difference of ₱6,300, which is divisible by 9). Check your entries for swapped digits.
Doing It in QuickBooks Online
QBO has a built-in reconciliation tool that makes this process much faster:
- Go to Settings → Reconcile (or Accounting → Reconcile).
- Select the account and enter the statement date and ending balance from the bank statement.
- QBO shows two columns: Payments and Deposits. Check off each transaction that matches the bank statement.
- As you check items off, QBO shows the difference between your cleared total and the statement ending balance.
- When the difference reaches ₱0, click Finish now. The reconciliation is complete.
- If items are missing, use the Add button to create them directly in the reconciliation screen.
Best practice
Reconcile every account, every month. Don't let it pile up. Reconciling three months at once is three times harder because you have to untangle which discrepancies belong to which month. Set a recurring appointment on your calendar — the first week of each month, reconcile the previous month.
Worked Example — Sweet Crumbs Bakery
Let's reconcile the bakery's checking account for November 2025. The bank statement shows an ending balance of ₱78,500. The book balance (Cash — Checking account in the ledger) shows ₱82,200. Here's the full reconciliation:
| Reconciliation Item | Amount (₱) |
|---|---|
| BANK SIDE | |
| Bank Statement Ending Balance (Nov 30, 2025) | 78,500 |
| Add: Deposit in Transit (Nov 30 — catering payment, not yet processed) | 12,000 |
| Less: Outstanding Check #1047 (rent check, mailed Nov 28, not yet cleared) | (8,000) |
| Less: Outstanding Check #1051 (flour supplier, written Nov 29, not yet cleared) | (3,500) |
| Adjusted Bank Balance | 79,000 |
| BOOK SIDE | |
| Book Balance per General Ledger (Nov 30, 2025) | 82,200 |
| Less: Bank Service Charge (monthly maintenance fee, not yet recorded) | (500) |
| Less: NSF Check (customer's check bounced — ₱4,200 returned) | (4,200) |
| Add: Interest Earned on Checking Account (not yet recorded) | 1,500 |
| Adjusted Book Balance | 79,000 |
Both sides equal ₱79,000. The reconciliation is complete. Now you need to record three journal entries to bring your books in line:
- Record bank service charge:
Debit: Bank Fees Expense ₱500 | Credit: Cash — Checking ₱500
- Record NSF check:
The customer's ₱4,200 check bounced, so they owe the bakery again. Debit: Accounts Receivable ₱4,200 | Credit: Cash — Checking ₱4,200
- Record interest earned:
Debit: Cash — Checking ₱1,500 | Credit: Interest Income ₱1,500
After these three entries, the book balance becomes ₱82,200 − ₱500 − ₱4,200 + ₱1,500 = ₱79,000. This matches the adjusted bank balance. The reconciliation is done.
After reconciliation, always update the books.
The reconciliation found three items the bank knew about but the books didn't: a fee, a bounced check, and interest. These must be journal entries so next month's starting balance is correct. Never skip this step.
If they still don't match
Go back and check every single transaction. Start with deposits — match them one by one. Then checks — match them one by one. A difference that's divisible by 9 means a transposition. A difference that matches a specific transaction means that transaction was recorded incorrectly. Be patient — reconciliation is detective work.