Bank Reconciliation: Match Records and Bank Statements

Published Friday 16 January 2026

Table of contents

• What is bank reconciliation?
• How often should you reconcile your bank account?
• Bank reconciliation steps
• Bank reconciliation problems
• How to do bank reconciliation the easy way
• Best practices for efficient bank reconciliation
• Keep your finances accurate and save time
• FAQs on bank reconciliation

Key takeaways

• Reconcile your bank accounts at least monthly, but aim for weekly or daily reconciliation to catch discrepancies quickly while transactions are still fresh in your memory.
• Compare all bank deposits against your business income records and all bank withdrawals against your expense records to ensure every transaction is properly recorded in both systems.
• Implement accounting software with automated bank feeds to reduce manual reconciliation work by up to 75% and minimise human errors through automatic transaction matching.
• Investigate any discrepancies immediately by checking for common issues like outstanding payments, deposits in transit, bank fees, or transactions recorded in the wrong account.

What is bank reconciliation?

Bank reconciliation is the process of matching the balances in your business's accounting records to the corresponding information on a bank statement. The goal is to find any differences between the two records and make changes to the accounting records as needed.

It's a core part of keeping your financial books accurate.

Why bank reconciliation matters for small business

For a small business, regular bank reconciliation is vital. It helps you keep track of your cash flow, spot potential issues like bank errors or unauthorised transactions, and ensures your financial reports are reliable.

Accurate records are essential for making informed business decisions, managing budgets, and simplifying tax time, especially since the New Zealand financial year runs from 1 April to 31 March.

How often should you reconcile your bank account?

How often you reconcile depends on your business's transaction volume. You might find it helpful to reconcile your accounts weekly or even daily.

The more frequently you do it, the easier it is to catch discrepancies and remember what each transaction was for. At a minimum, you should reconcile your accounts at least once a month.

Bank reconciliation steps

Bank reconciliation compares your business records against your bank's records to verify accuracy. This process helps you:

• Catch errors: Spot mistakes in either your books or bank records
• Prevent fraud: Identify unauthorised transactions quickly
• Maintain accuracy: Ensure your financial records reflect reality

1. Get bank records

Collect transaction data from all your business accounts.

Sources for bank records:

• Bank statements: Monthly paper or digital statements
• Online banking: Real-time transaction downloads
• Direct feeds: Automatic data transfer to accounting software
• Multiple accounts: Include all business accounts (current accounts, credit cards, savings)

2. Get business records

Access your complete record of income and expenses.

Where to find your records:

• Accounting software: Digital ledgers with automated data entry
• Spreadsheets: Manual tracking systems like Excel
• Physical logbooks: Handwritten income and expense records
• Receipt management: Digital tools that capture and categorise expenses

3. Find your starting point

Locate the last date when your business records matched your bank balance exactly.

How to identify your starting point:

• Check your previous reconciliation date
• Compare closing balances from your last successful match
• Use this date as your reconciliation beginning point

4. Run through bank deposits

Make sure each deposit appears as income in your accounts. If something is missing, enter it. You'll need to figure out if it was a sale, interest, a refund, or something else.

5. Check the income on your books

Each entry should match a deposit on your bank statement. If something is missing, find out why. A customer payment might have bounced, for example.

6. Run through bank withdrawals

All bank withdrawals should be recorded in your books. This includes things like bank fees, which you might not have accounted for yet.

7. Check the expenses on your books

Each entry should match a withdrawal on your bank statement. If not, find out why. One of your payments may not have cleared yet, or maybe you paid using cash or a different account.

8. End balance

After you've checked all the deposits and withdrawals, your business bank balance should match the totals in your business accounts. This will be the starting point for your next reconciliation.

Check out Xero's bank reconciliation features.

Bank reconciliation problems

Discrepancies between your records and bank statements are normal and usually have simple explanations. Bank reconciliation helps you spot and fix these differences early so you can keep your records accurate and up to date.

Business books show something that's not on your bank statement

If a transaction isn't showing on your bank statement, it's most likely because you got income that you didn't bank, or you paid for something out of a different account or with cash. Get to the bottom of it and make the necessary notes.

Bank statement shows something that's not in your business books

If a transaction isn't showing in your business books, it could be from a keystroke error when you entered a transaction. Or it could be a transaction that you forgot to enter. Make the required corrections or updates.

Fixing bank reconciliation problems

Reconcile weekly or daily so you spend less time working out differences. Recent transactions are easier to remember and sort out.

Why frequent reconciliation saves time:

• Fresh memory: Recent transactions are easier to recall and categorise
• Smaller batches: Fewer transactions to review in each session
• Quick resolution: Problems are caught and fixed before they multiply

How to do bank reconciliation the easy way

Accounting software automates bank reconciliation, reducing manual work by up to 75%. Instead of manually comparing documents, software matches transactions automatically and flags discrepancies for your review.

Benefits of automated reconciliation:

• Time savings: Complete reconciliation in minutes, not hours
• Accuracy: Reduce human error through automated matching
• Real-time updates: Connect directly to your bank for instant data

How automated bank reconciliation works

Bank reconciliation software connects securely to your bank and automates the matching process.

1. Secure connection: Software links to your bank through encrypted feeds
2. Transaction import: Bank data flows automatically into your accounting system
3. Smart matching: Software suggests matches between bank and business records
4. Manual review: You approve matches or categorise unmatched items

Best practices for efficient bank reconciliation

Schedule regular reconciliation to maintain accurate records with minimal time investment.

Best practice frequency:

• Daily: Ideal for high-transaction businesses
• Weekly: Suitable for most small businesses
• Monthly: Minimum recommended frequency

System setup for efficiency:

• Designate specific times: Block calendar time for reconciliation
• Organise documents: Keep bank statements and receipts easily accessible
• Use templates: Create consistent processes for faster completion

Keep your finances accurate and save time

Bank reconciliation helps you keep your business numbers accurate. By keeping on top of it, you gain a clear view of your financial health and can run your business with more confidence. Using the right tools can transform it from a chore into a simple, quick part of your routine.

Ready to make bank reconciliation easier? Try Xero for free and see how simple it can be to run your business, not your books.

FAQs on bank reconciliation

Here are answers to some common questions about bank reconciliation.

What are the four steps of bank reconciliation?

The main steps are getting your bank and business records, comparing deposits and withdrawals, noting any discrepancies like outstanding checks or deposits in transit, and adjusting your books to match the correct balance.

What is the formula for bank reconciliation?

There isn't one single formula, but the goal is to make your book balance equal your bank balance after accounting for items that haven't cleared. It generally involves taking your bank statement balance, adding any deposits in transit, and subtracting any outstanding checks.

What if my bank reconciliation doesn't balance?

If your reconciliation doesn't balance, it's time to investigate. Look for common errors like missed transactions, duplicate entries, or simple data entry mistakes. Go back through your records and statements step by step until you find the source of the difference.