How to do bank reconciliation in 7 steps (with PHP example)

Published Monday 26 October 2026

Table of contents

• Why bank reconciliation matters
• Bank reconciliation steps
• Bank reconciliation example (with PHP figures)
• How to reconcile in Xero
• Bank reconciliation problems
• Common bank reconciliation mistakes to avoid
• Reconcile your bank accounts faster with Xero
• FAQs on bank reconciliation

Key takeaways

• Bank reconciliation checks that your cash book agrees with your bank statement, so you catch errors and missing entries early
• Learning how to do bank reconciliation takes seven steps, finishing with a comparison of adjusted balances and a filed statement
• Deposits in transit and outstanding checks adjust the bank side, while bank charges and errors adjust your books
• A monthly routine keeps your cash position current, and Xero bank feeds take most of the typing out of it

Why bank reconciliation matters

Your bank statement and your books track the same money from two sides. Knowing how to do bank reconciliation lets you confirm those records agree and pinpoint where they differ.

A regular reconciliation helps you:

• spot data entry errors and duplicate payments before they distort your reports
• catch withdrawals or charges you don't recognize while they're still easy to query with your bank
• see how much cash you really have before you pay suppliers or staff
• give your accountant figures they can rely on at tax time
• show lenders and investors records that hold up to review

It's one of the habits that keeps small business bookkeeping manageable as your transactions grow.

Bank reconciliation steps

Work through these seven steps each month; the flow below shows how both sides land on the same balance. For the full definition of bank reconciliation, see the Xero glossary.

1. Gather your bank statement and records

Download your bank statement for the period, plus statements for any e-wallets, such as GCash, that you use for business. Then pull your cash book for the same dates, along with invoices, receipts, deposit slips and your check register.

2. Confirm your opening balance

Check that your opening balance equals the closing balance from last month's reconciliation. If the two differ, sort out that gap first, since every later figure builds on it.

For your first reconciliation, start from the bank statement's opening balance on the date you began keeping records.

3. Match deposits

Tick off each deposit on the statement against an entry in your books, including InstaPay and PESONet transfers from customers. Any deposit in your books that hasn't reached the bank yet is a deposit in transit.

Next, look for bank credits with no matching entry, such as interest earned or a customer payment you haven't recorded.

4. Match withdrawals and checks

Do the same for money going out: card payments, transfers, GCash cash-outs and cleared checks. A check you've issued that the bank hasn't paid yet is an outstanding check.

Flag any debit you don't recognize, such as a bank fee or a supplier's auto-debit.

5. List reconciling items

Write down every item that explains the gap between the two balances. Bank-side items are timing differences, such as deposits in transit and outstanding checks, which clear on their own.

Book-side items are things the bank has recorded and your books haven't, such as bank charges or a data entry error.

6. Record adjustments in your books

Post entries for the book-side items only, such as bank charges, interest income, missed auto-debits and corrections. Leave timing items as they are; they'll appear on next month's statement.

7. Compare adjusted balances and file the statement

Add deposits in transit to the bank statement balance and subtract outstanding checks. Then adjust your book balance for the entries from the previous step, and the two figures should match.

Save the reconciliation statement with the bank statement and receipts so you or your accountant can find it at tax time.

Bank reconciliation example (with PHP figures)

Here's how the steps work for a small retail business closing its books on March 31. The figures are illustrative and match the flow shown above.

Start with the bank side, which shows:

• a bank statement balance of ₱185,400
• deposits in transit of ₱24,000, from sales banked after the bank's cut-off
• outstanding checks of ₱20,800, made up of check no. 1045 for ₱12,500 and check no. 1047 for ₱8,300
• an adjusted bank balance of ₱188,600 (₱185,400 + ₱24,000 − ₱20,800)

Next, work through the book side, which shows:

• a cash book balance of ₱189,100
• a ₱300 maintaining-balance fee not yet recorded
• ₱200 in fund transfer fees, also not yet recorded
• an adjusted book balance of ₱188,600 (₱189,100 − ₱500 in bank charges)

Both sides now show ₱188,600, so the account is reconciled. Only the ₱500 in bank charges needs an adjusting entry, because the deposit and checks will clear by themselves next month.

In double-entry bookkeeping, that's a debit of ₱500 to bank charges expense and a credit of ₱500 to cash in bank. Use the same approach whenever you record accounting transactions the bank processed first, such as interest earned.

How to reconcile in Xero

Xero brings your bank transactions in automatically, so most of the work becomes a quick review of suggested matches. Follow these steps:

1. Connect your bank feed so transactions flow into Xero
2. Open the bank account you want to reconcile
3. Accept each suggested match that's correct
4. Create or code any unmatched transactions against your chart of accounts
5. Check the bank reconciliation report to confirm Xero's balance agrees with your statement

Each coded transaction posts to your general ledger, so your reports stay current as you go.

Under Section 74 of Presidential Decree 1445, the Government Auditing Code, government agencies must reconcile bank balances with their books monthly. The Commission on Audit (COA) audits these agencies, and for private small businesses, a monthly close is good practice rather than a legal requirement.

Bank reconciliation problems

Most differences fall into one of two groups, depending on which record shows the item. Here's how to find and fix each one.

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

This usually means the money hasn't reached the bank yet or landed somewhere else. Check whether:

• you recorded income you haven't banked yet, such as cash takings still in the till
• the payment went into a different bank account or e-wallet
• a customer paid in cash and you recorded it as a bank deposit
• a check you issued hasn't been presented yet

Move entries to the right account, and let genuine timing items clear next month.

Your bank statement shows something that's not in your books

This usually points to a gap in your records. Look for:

• a data entry error, such as ₱1,520 typed as ₱1,250
• a missing entry for a transfer or GCash payment
• bank fees or interest you haven't recorded
• an auto-debit you set up and forgot about

Correct the entry or add the missing transaction, then compare the balances again.

Common bank reconciliation mistakes to avoid

Most reconciliation headaches trace back to a handful of habits. Watch out for:

• leaving it for months, which turns a quick check into a hunt for old receipts
• forcing the balance with a manual adjustment before you find the real cause
• ignoring small differences, since a ₱50 gap can hide two larger errors that partly cancel out
• running personal and business spending through the same account
• forgetting to record bank charges and interest

To keep each session short, set a fixed date every month and attach digital receipts to transactions as you go. Bank feeds also cut the manual typing that leads to data entry errors.

Reconcile your bank accounts faster with Xero

A monthly reconciliation gives you a clear view of your cash and cleaner records at tax time. With automated reconciliation, Xero bank feeds bring in your transactions and suggest matches, so you spend less time on your books.

Compare Xero plans and get one month free to start reconciling with confidence.

FAQs on bank reconciliation

Here are quick answers to common questions about doing a bank reconciliation.

How do you prepare a bank reconciliation statement?

Show the bank balance adjusted for deposits in transit and outstanding checks next to your book balance adjusted for bank charges and errors. Date it, have the preparer sign it, and keep it with that month's bank statement.

How do you record bank charges found during reconciliation?

Debit a bank charges expense account and credit your bank account, using the date the bank deducted the fee. Matching that date keeps your monthly figures in line with the statement.

How long does bank reconciliation take?

It depends on how many transactions you have and how often you reconcile. Weekly or monthly sessions stay short because you're matching recent transactions you still remember.

Do I need to reconcile credit card and e-wallet accounts too?

Yes, reconcile each credit card and e-wallet, such as GCash or Maya, against its own statement. Business spending and customer payments often pass through these accounts, so they belong in your books.

What should I check if my accounts still don't balance?

Check whether the difference divides evenly by nine, which often signals transposed digits. Then look for an entry equal to half the difference, which suggests it was posted on the wrong side.