The short answer: A bank reconciliation proves the general ledger cash balance against the bank statement by isolating every timing difference and every recording error separating them. In the August statement worked below, an apparent variance of $194.25 conceals $56,767.75 of reconciling movement, and both columns settle at $410,403.79.
- Each column absorbs a distinct category. Timing adjusts the bank side; unrecorded facts adjust the book side.
- Deposits in transit follow a published clock. Regulation CC lets an institution withhold whatever exceeds $6,725 of a single deposit.
- Outstanding checks age into liability. Florida presumes most intangible property abandoned after 5 years, unpresented payroll after 1.
- A variance divisible by 9 is nearly always a transposed digit. Apply that test before rereading anything.
- Only book-side items become journal entries. Timing differences extinguish themselves next period.
Last updated September 2026.
A bank reconciliation fails quietly. Statement and ledger diverge by $194.25, the figure resembles a rounding artifact, and the close proceeds. Underneath sit $56,767.75 of unmatched items, including a dishonored customer check the books still count as collected.
The exercise below carries one August 2026 operating account from statement to tie-out. Six discrepancies surface: four timing, two genuine errors. Only the errors reach the general ledger.
How do you do a bank reconciliation step by step?
In five passes. Agree the opening balance, tick deposits, tick disbursements, adjust each column for what the other already knows, then post only book-side corrections.
- Confirm the opening balance. Last period’s adjusted figure must equal this statement’s beginning balance. A mismatch invalidates everything downstream.
- Match deposits. Tick every credit on the statement against a lodgement in the register. Whatever survives unticked is in transit.
- Match disbursements. Tick checks, ACH debits, and card settlements. Unticked payments are outstanding.
- Adjust both columns. Timing items move the bank figure. Fees, dishonored items, interest, and errors move the book figure.
- Post and archive. Journalize the book-side corrections, then file the statement alongside the schedule.
Sequence matters because each pass narrows the surviving population. Companies reconciling on a weekly reconciliation cadence finish step two within minutes.
What causes a difference between bank balance and book balance?
Three families, each demanding separate treatment: timing lags, institution-initiated entries the register has never seen, and recording errors.
Timing lags dominate, benignly. A check mailed August 27 waits in a payee’s drawer; a deposit made August 31 clears September 2. Neither signals trouble, and neither generates an entry.
Institution-initiated entries are facts the company simply lacks. Service charges, wire fees, sweep interest, and dishonored deposited items all originate downstream at the bank. Management learns of them from the statement itself.
Errors justify the whole exercise. A transposed digit, a duplicated payment, a lodgement coded against the wrong account. Those distort cash silently, which is why reconciliation belongs inside the month-end close process rather than beside it.
A worked bank reconciliation: one August statement
The subject is a $22M services business operating a single account in QuickBooks Online. Its August 2026 statement and register disagree by $194.25.
| Reconciling item | Bank side | Book side | Why it exists |
|---|---|---|---|
| Balance per source, August 31, 2026 | $412,860.44 | $413,054.69 | The $194.25 variance that reads as immaterial |
| Deposits in transit (2) | +$25,057.50 | none | Lodged after the statement cutoff |
| Outstanding checks (4) | −$27,514.15 | none | Issued and mailed, never presented |
| Service and wire charges | none | −$148.50 | Debited by the bank, never journalized |
| Customer check dishonored | none | −$3,275.00 | Deposit reversed; the receivable revives |
| Sweep interest credited | none | +$412.60 | Income the register never captured |
| Check 4428 booked at $1,730.00, cleared at $1,370.00 | none | +$360.00 | Transposed digit in the original entry |
| Adjusted balance | $410,403.79 | $410,403.79 | The reconciliation ties |
Work the bank column. From $412,860.44, add $25,057.50 of deposits in transit and subtract $27,514.15 of outstanding checks, yielding $410,403.79.
Work the book column. From $413,054.69, four adjustments net to $2,650.90 of reduction, arriving at the identical $410,403.79. Two carry consequence past the tie-out: the $3,275.00 dishonored check revives a receivable the sales team considers settled, and the $360.00 correction restores cash never actually disbursed.
How do you handle outstanding checks and deposits in transit?
Schedule both, then age both. A reconciliation listing them undated suppresses the only intelligence they carry.
Deposits in transit obey a published clock. The Federal Reserve’s Regulation CC compliance guide requires funds from a deposited check to be available “by the second business day following the day of deposit,” and observes that with a single Reserve Bank check-processing region, “there are no longer any ‘nonlocal’ checks.”
Magnitude alters that answer. The large-deposit exception permits that “any amount exceeding $6,725 may be held,” so the $18,742.00 batch lodged August 29 divides: $6,725 releases on schedule, $12,017.00 may linger. Anything still uncollected nine days later has become a banking question.
Outstanding checks age oppositely. Anything beyond 60 days warrants a call to the payee, since an unpresented check is usually an undelivered one.
When does an outstanding check stop being outstanding?
At six months it ceases to bind the bank. Between one and five years the state takes custody of the funds, though the payee’s right to claim them never expires.
Florida’s enactment of the Uniform Commercial Code says so plainly. Section 674.404 provides that “a bank is under no obligation to a customer having a checking account to pay a check, other than a certified check, which is presented more than 6 months after its date.” Check 4412, dated February 6 for $9,860.00, crossed that boundary in August.
Voiding it extinguishes nothing. Florida Statute 717.102 presumes intangible property abandoned where “the apparent owner or authorized representative fails to demonstrate continued interest for more than the applicable dormancy period,” and provides that “unless otherwise specified by law, the dormancy period is 5 years from the date the property becomes payable or distributable.” Documented contact with the payee therefore restarts the clock. Payroll runs a shorter fuse: Section 717.115 presumes unpresented payroll checks abandoned after “more than 1 year after becoming payable.”
Practically, maintain a two-column aging schedule. Reissue whatever is stale; reserve whatever approaches escheatment.
How do you reconcile an account in QuickBooks Online?
The mechanics replicate those five passes; software merely supplies the worksheet. Enter the ending balance and ending date, then clear each matched transaction until the difference reads zero.
Two disciplines determine whether the result signifies anything. Never force agreement through an automatic adjusting entry, since the variance then resides in an account nobody examines. And reconcile against the statement rather than the feed, because a feed can duplicate a transaction or omit one entirely.
Xero and NetSuite behave equivalently. Puzzle and comparable platforms deliver a clean, current transaction feed; a controller still adjudicates exceptions and signs the schedule. Where the underlying file is already disordered, a QuickBooks cleanup precedes any reconciliation worth trusting.
What do you do when the reconciliation won’t balance?
Interrogate the variance before rereading the statement. Its magnitude usually identifies the error class outright.
Divide by 9. A quotient without remainder indicates a transposed digit, because exchanging two digits always yields a difference 9 divides evenly. The $360.00 error above returns exactly 40.
Divide by 2. A clean quotient suggests one item posted against the wrong side, with the original transaction equalling half the variance. Then search the register for the difference as a literal amount, which exposes a solitary omitted entry immediately.
Should all three tests fail, the fault is structural. Verify the opening balance against last period’s schedule, confirm the date window matches the statement period, and establish whether a deposit was recorded gross while the bank credited it net of merchant fees.
Aaron Ressel treats an unreconciled variance as a hard stop on the close calendar, since an unexplained $194.25 and an unexplained $19,425 constitute the same defect at different magnitudes. Dishonored items belong in that review, which is why reconciliation and the accounts receivable close run in one sitting.
Frequently asked questions
What journal entries does a bank reconciliation produce?
Only the book-side adjustments. Bank service charges, dishonored deposited items, interest credited, and correcting entries for recording errors all post to the general ledger. Deposits in transit and outstanding checks generate nothing, because the register already captured them correctly and the institution has yet to catch up.
Who should perform a bank reconciliation?
Someone who neither records transactions nor holds signing authority on the account. Segregation of duties is the control a reconciliation actually delivers. Where a company is too small to separate those roles, a documented review by a second person, including the aged outstanding check schedule, supplies equivalent evidence.
Can a bank reconciliation be off by a small amount and still be accepted?
No. A variance of any size means an unidentified item exists, and its magnitude reveals nothing about severity. A $2.00 gap can represent two offsetting errors of $4,000. Reconciliations balance to zero or they remain open.
What records support a completed bank reconciliation?
The statement, the schedule showing both adjusted balances, dated listings of deposits in transit and outstanding checks, and the journal entries posted from it. Retain them as one package, because a reviewer reconstructing the period needs the schedule considerably more than the ledger.
