How to do a bank reconciliation

Key points

Reconcile every bank and credit card account monthly, before reviewing the financial statements.
Differences come from timing, bank charges, errors or missing transactions.
Old reconciling items should be investigated, not carried forward indefinitely.

Gather the bank statement and the general ledger cash account for the same period.
Confirm the opening balance agrees to last month's reconciled balance.
Match deposits in the books to deposits on the statement.
Match withdrawals, cheques and payments.
Record bank-only items in the books: service charges, interest, pre-authorized debits, returned payments.
List timing differences: deposits in transit and outstanding cheques.
Prove it: statement balance + deposits in transit − outstanding cheques = adjusted book balance.
Review and sign off, ideally by someone other than the person who records transactions.

Outstanding cheques older than three months, which may be lost, stale-dated or duplicated.
Unexplained "plug" entries to force the reconciliation to balance.
Payments to unfamiliar payees or round-number transfers.

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