Comparison of the bank statement with the cash ledger to explain timing differences, record missing items, and confirm the cash balance can be trusted.
Bank reconciliation is the accounting process of comparing the balance in the bank statement with the cash balance in the company ledger, then explaining or recording the differences so the final cash number is reliable.
Cash is one of the highest-risk balances in accounting because it is used often and can be misstated by timing differences, missed charges, duplicate entries, or unauthorized transactions. Bank reconciliation helps accountants prove the recorded cash balance before the period is closed.
The reconciliation starts with two records: the bank statement balance and the cash ledger balance. The accountant compares them, separates timing items from true errors, records any missing bank activity in the books, and confirms that the adjusted balances match.
| Common Difference | Usually Affects | Typical Treatment |
|---|---|---|
| Deposit in transit | Bank side only at statement date | Adjust bank side in the reconciliation |
| Outstanding check | Bank side only at statement date | Adjust bank side in the reconciliation |
| Bank fee | Book side because it is not yet recorded | Post an adjusting entry |
| NSF customer payment | Book side because cash is lower than expected | Restore receivable and reduce cash |
| Bookkeeping error | Book side or both sides | Correct the mistaken entry |
At month end, the bank statement shows 18,980 and the cash ledger shows 18,930.
| Reconciliation Item | Bank Side | Book Side |
|---|---|---|
| Ending balance before reconciliation | 18,980 | 18,930 |
| Add: deposit in transit | 600 | |
| Less: outstanding checks | (860) | |
| Less: NSF customer payment | (150) | |
| Less: bank service fee | (60) | |
| Adjusted balance | 18,720 | 18,720 |
The book-side items become entries such as:
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | 150 | |
| Bank Fee Expense | 60 | |
| Cash | 210 |
Bank reconciliation does not mean the bank changes its records to match yours. The company adjusts only its own books when new information appears on the statement. It is also not the same as general reconciliation, because bank reconciliation is a specific cash-focused version of the broader reconciliation process.