Bank Reconciliation Explained: What It Is and Why It Matters

Bank reconciliation is one of those tasks that sounds technical but is actually straightforward once you understand it. It's also one of the most important things you can do to keep your finances accurate.

Bank reconciliation is the process of comparing your internal financial records to your bank statement to make sure they match. Every transaction in your books — deposits, withdrawals, payments, fees — should correspond to a transaction on your bank statement.

When they match, your books are reconciled. When they don't, you have a discrepancy that needs to be investigated.

Common causes of reconciliation differences include:

• Outstanding checks — checks you've written that haven't cleared yet
• Deposits in transit — money you've recorded but the bank hasn't posted
• Bank fees — charges you forgot to record
• Duplicate entries — the same transaction recorded twice
• Errors — typos, transpositions, or wrong amounts
• Fraud — unauthorized transactions you didn't catch

Monthly, at minimum. Many businesses reconcile weekly. The longer you wait, the harder it is to track down discrepancies and the more likely errors are to compound.

Skipping reconciliation means your books may show a balance that doesn't reflect reality. You might think you have more cash than you do, miss fraudulent charges, or file taxes based on inaccurate numbers.

In an audit, unreconciled books are a red flag.

QuickBooks Online makes reconciliation straightforward. You enter your bank statement's ending balance, then match transactions one by one. QBO flags anything that doesn't match and keeps a reconciliation history.

If you're not sure how to use QBO's reconciliation feature, our QuickBooks Online Support service can walk you through it — or handle it for you entirely.

Need help keeping your books reconciled every month? The Gap ProAdvisors handles monthly bookkeeping for small businesses nationwide. Get started today.