What is bank statement reconciliation?

Bank statement reconciliation is the process of comparing the ending balance on a bank statement to the corresponding general ledger cash account balance, identifying and explaining all differences. For professional service firms, monthly bank reconciliation is a fundamental control ensuring cash records are accurate.

Key characteristics

• Compares bank to books

• Identifies timing differences

• Catches errors and fraud

• Should be done monthly

• Reconciling items documented

• Fundamental internal control

Why it matters for professional service firms

Bank reconciliation catches errors, identifies unauthorized transactions, and ensures cash balances are accurate. Unreconciled accounts hide problems. Professional service firms should reconcile all bank accounts monthly, with documented reconciling items reviewed by someone other than the bookkeeper.

Real-world example

Patricia's monthly bank reconciliation: bank statement ending balance $45,230, book balance $42,880. Reconciling items: outstanding checks $3,200, deposit in transit $850, bank service charge not recorded $50. Adjusted book balance: $42,880 minus $50 equals $42,830. Adjusted bank balance: $45,230 minus $3,200 plus $850 equals $42,880. After recording the bank charge, both equal $42,830. Reconciled.