What is a bank reconciliation statement?

A bank reconciliation statement is a document that compares the cash balance in a company's accounting records to the corresponding balance on its bank statement, identifying and explaining any differences. For professional service firms, monthly bank reconciliation is a fundamental control that ensures recorded cash balances match actual bank balances. Differences typically arise from outstanding checks, deposits in transit, bank fees, and errors requiring correction.

Key characteristics

• Compares the book balance to the bank statement balance

• Identifies outstanding checks not yet cleared

• Accounts for deposits in transit not yet posted

• Captures bank fees needing recording

• Detects errors in either records or bank processing

• Should be completed within days of receiving the bank statement

Why it matters for professional service firms

Bank reconciliation is a foundational financial control. Without it, you cannot be confident that your cash balance is accurate or that all transactions have been properly recorded. Unreconciled accounts can hide errors, fraud, or missing transactions, thereby distorting financial statements. Professional service firms should reconcile all bank accounts monthly, ideally within 5 business days of the month-end. The reconciliation process also catches bank errors, duplicate charges, and unauthorized transactions that would otherwise go unnoticed.

Real-world example

Jennifer's firm assumed their bookkeeper reconciled the bank accounts, but no one verified it. When Jennifer finally reviewed, she found six months of unreconciled statements. The reconciliation process revealed: $8,400 in unrecorded bank fees; $3,200 in a duplicate vendor payment (bank error); $15,000 in a client deposit recorded but never received (client's check bounced without notification); and $2,100 in small transactions never entered—total discrepancy: over $28,000. New process: bookkeeper reconciles within 5 days of statement receipt; controller reviews and signs the reconciliation; Jennifer spot-checks quarterly. The discipline prevented future surprises and improved cash accuracy.