How do you do a bank reconciliation?

A bank reconciliation checks that the ledger agrees with the bank. You take the statement, tick off each line against an entry in the books, explain whatever does not match, and finish when both balances are the same number. It is the habit that keeps everything else trustworthy, and the reconciliation section holds the related questions.

For anyone still getting used to the vocabulary, bookkeeping explained comes first. Software now suggests most matches, so the top-ranked tool among the accounting packages already does a good part of this.

The steps

1. Pick the statement period and start from the opening balance. It should equal last month’s closing balance in the ledger.
2. Go down the statement. For each deposit and withdrawal, find the ledger entry and mark both.
3. Add any statement lines the ledger does not have yet, such as bank fees or interest.
4. Look at the ledger entries left unmarked. Most are timing differences, like a check that has not cleared.
5. Compare the adjusted ledger balance with the statement’s closing balance. When they agree, the month is done.

Where the differences hide

Fees are the usual suspect. A card processor or a marketplace takes its fee before paying out, so the deposit is smaller than the sales. An online store adds refunds and payouts that carry many orders at once. If the ledger records orders but the bank records payouts, nothing lines up until the entries are grouped.

When several months have gone unchecked, the work gets long, and getting months of books caught up lays out how to attack it. A reconciliation tool is part of the criteria on the full QuickBooks Online scorecard, and accounting tools with a free plan are a cheap way to get one.

What software changes

Tools differ in what they match for you. Xero lists bank reconciliation on every plan, and Zoho Books lists it from the free plan up. The Wave score breakdown shows where its bank import sits, since that comes with the paid plan. Comparing QuickBooks against Xero shows how the two largest names handle bank matching.

Stores that sell on Shopify have one more wrinkle. Shopify-to-ledger apps group orders by payout, which is exactly the grouping a reconciliation needs. For the ledger underneath them, accounting tools for web stores rank the options, and Xero’s strengths and gaps are worth reading before picking one.