What Is Bank Reconciliation? Steps and an Example
What is bank reconciliation, how to do it step by step with a worked example, the usual reasons for differences, and when software is worth it.
The bank says 48,500. Your books say 49,450. Which one is right? Usually both, but each one does not know yet what the other knows.
This guide explains what bank reconciliation is, how to do it step by step with a worked example, and when it is worth letting software do it.
What is bank reconciliation?
Bank reconciliation is comparing your bank statement with your accounting records for the same period, then explaining every difference until the two balances agree.
It proves that every amount in your books is real and every bank transaction is recorded. Without it, errors, forgotten fees and even fraud can go unnoticed.
Bank reconciliation steps
- Gather the bank statement and the ledger for the same period.
- Match every deposit in the bank to its entry in your books, and every withdrawal to its entry.
- List what is in the bank but not your books: bank fees, interest, incoming transfers.
- List what is in your books but not the bank yet: uncashed cheques, deposits in transit.
- Adjust both balances by these items until they agree, then post the entries your books need.
A bank reconciliation example with numbers
| Item | Amount (SAR) |
|---|---|
| Bank statement balance at month end | 48,500 |
| + Deposit in transit (not in the bank yet) | 3,000 |
| − Cheque issued but not cashed yet | 2,200 |
| = Adjusted bank balance | 49,300 |
| Book balance at month end | 49,450 |
| − Bank fee not recorded in the books | 150 |
| = Adjusted book balance | 49,300 |
Common reasons for differences
- Timing: a cheque or transfer recorded by you that has not cleared the bank.
- Fees and interest the bank takes, recorded only once you see the statement.
- Entry errors: swapped digits such as 540 instead of 450, or a duplicated entry.
- One customer payment covering several invoices, so no single invoice matches the amount.
A practical tip: if the difference divides evenly by 9, two digits have probably been swapped.
When you need bank reconciliation software
Reconciling by hand is fine for one account with a few transactions. It gets slow with several accounts, hundreds of lines or many clients.
In Bayainy you upload the statement and your ledger file. Every possible pair gets a score from 0 to 100 based on amount, date and description. One payment can match several invoices, near-misses come back as suggestions, and a wrong amount is never matched.
Frequently asked questions
What is the purpose of bank reconciliation?
To prove your books match what really happened in the bank, and to catch errors, forgotten fees and unauthorised transactions early.
How often should you reconcile your bank account?
At least monthly, and weekly for busy accounts. Always before closing a period or filing a tax return.
What if the balances do not match?
Look for unrecorded transactions, then swapped digits and duplicated entries. If the difference divides evenly by 9, start with swapped digits.
Does Bayainy post entries to my books?
No. Bayainy matches the transactions and gives you the result and an Excel file; the entries are posted in your accounting system.
OpenStax: Principles of Financial Accounting, bank reconciliation
Open accounting textbook on the purpose of a bank reconciliation and how to prepare one
Free Bank Reconciliation Template
A ready Excel template with formulas to reconcile your statement against your books
Automated Bank Reconciliation
Upload the statement and your ledger and get the reconciliation in seconds
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