How to do bank reconciliation: 8 steps to get it right

Published Friday 3 April 2026

Table of contents

• What is bank reconciliation?
• Why bank reconciliation matters
• Bank reconciliation steps
• Bank reconciliation problems
• Fixing bank reconciliation problems
• How to do bank reconciliation the easy way
• How to use bank reconciliation software
• Make bank reconciliation quick and easy
• Use Xero to streamline your bank reconciliation
• FAQs on bank reconciliation

Key takeaways

• Reconcile your bank accounts at least weekly to catch errors early, prevent fraud, and make the process quicker by having fewer transactions to review and clearer memory of recent activity.
• Follow a systematic eight-step process starting with gathering bank and business records, then checking deposits and withdrawals in both directions to ensure every transaction appears in both sets of records.
• Investigate discrepancies by looking for common causes like unbanked income, timing differences, forgotten automatic payments, or bank fees that weren't recorded in your business books.
• Use bank reconciliation software with automatic feeds to reduce manual work from hours to minutes, as it can run up to 100 times faster with 98% fewer errors than manual methods.

What is bank reconciliation?

Bank reconciliation is the process of comparing your internal financial records against your bank statement to make sure they match. It helps you verify that every transaction in your books corresponds to what your bank has recorded.

When you reconcile, you're checking that:

• deposits in your records match deposits on your bank statement
• withdrawals and payments align across both sets of records
• any differences are identified and explained

Regular reconciliation catches errors early, prevents fraud, and keeps your financial records accurate for tax time. The Association of Certified Fraud Examiners reports that around 22% of financial statement fraud cases are uncovered through bank reconciliation.

Why bank reconciliation matters

Bank reconciliation protects your business by ensuring your financial records are accurate and complete. Regular reconciliation helps you spot errors and discrepancies quickly.

Bank reconciliation:

• Catches errors early: Spot mistakes like duplicate entries, missed transactions, or bank fees before they become bigger problems
• Prevents fraud: Identify unauthorised transactions or suspicious activity quickly
• Improves cash flow visibility: Know exactly how much money you have available at any time
• Simplifies tax preparation: Accurate records make tax time faster and less stressful, and automation can help businesses prepare, validate, and submit regulatory returns 10 times faster
• Supports better decisions: Trust your numbers when planning purchases, hiring, or investing in growth

Bank reconciliation steps

Follow these eight steps to reconcile your bank account with your business records. The process works whether you're using a spreadsheet, accounting software, or pen and paper.

1. Get bank records

Gather a complete list of transactions from your bank for the period you're reconciling. You can get this from:

• a printed or PDF bank statement
• your online banking portal
• a direct bank feed to your accounting software

If you have multiple accounts, such as a current account and a credit card, collect statements for each one.

1. Get business records

Open your record of income and expenses for the same period. This might be in:

• a logbook or notebook
• a spreadsheet
• accounting software like Xero

Some accounting software can pull in bills and receipts automatically using data capture tools, which saves time on manual entry.

1. Find your starting point

Identify the last date when your business records and bank balance matched exactly. Start your reconciliation from that point forward.

If this is your first reconciliation, begin with the opening balance on your earliest bank statement and work forward from there.

1. Run through bank deposits

Check that each deposit on your bank statement appears in your records. If something is missing, add it and categorise it correctly. Common deposit types include:

• customer payments
• bank interest
• refunds
• transfers from other accounts

1. Check the income on your books

Verify that each income entry in your records matches a deposit on your bank statement. If something doesn't appear on the statement, investigate why. Common reasons include:

• a customer payment that bounced
• a deposit you haven't banked yet
• income recorded in the wrong period

1. Run through bank withdrawals

Check that every withdrawal on your bank statement appears in your records. Commonly missed items include:

• bank fees and charges
• direct debits
• automatic subscription payments
• interest charges

Add any missing transactions to your books with the correct category.

1. Check the expenses on your books

Verify that each expense in your records matches a withdrawal on your bank statement. If something doesn't appear, find out why. Common reasons include:

• a payment that hasn't cleared yet
• an expense paid with cash
• a payment made from a different account

1. End balance

After checking all deposits and withdrawals, your bank balance should match the total in your business records. If the numbers match, your reconciliation is complete, and this balance becomes the starting point for your next reconciliation.

If there's a difference between the numbers, review your work for missed transactions or data entry errors. The troubleshooting sections below can help.

Bank reconciliation problems

When records don't match it's because amounts appear in one set of records but not the other. There's usually a straightforward explanation. Here are the two most common scenarios and how to resolve them.

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

If a transaction appears in your records but not on your bank statement, check for these common causes:

• Unbanked income: Cash or cheques you received but haven't deposited yet
• Different payment method: You paid with cash or from another account
• Timing difference: A cheque you wrote hasn't cleared yet
• Recording error: The transaction was entered in the wrong period

Once you identify the cause, add a note to your records explaining the discrepancy.

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

If a transaction appears on your bank statement but not in your records, check for these common causes:

• Forgotten transaction: A purchase or payment you didn't record
• Automatic payment: A direct debit or subscription you overlooked
• Bank fees: Charges the bank applied that you haven't entered
• Data entry error: A transaction recorded with the wrong amount

Add the missing transaction to your books or correct the error to bring your records into alignment.

Fixing bank reconciliation problems

Reconcile more frequently to make troubleshooting faster and easier. When you reconcile weekly or even daily, you'll have a clearer memory of recent transactions and spend less time hunting through invoices, receipts, and emails.

Reconciling frequently makes it easier to track down discrepancies. Regular reconciliation turns a lengthy search into a quick check.

How to do bank reconciliation the easy way

Bank reconciliation software can turn hours of manual work into minutes. Instead of switching between documents and comparing numbers line by line, software automates the matching process and flags discrepancies for you.

If you want reconciliation to be faster and easier, software is a more reliable alternative, with some automated processes running up to 100 times faster and with 98% fewer errors.

How to use bank reconciliation software

Bank reconciliation software connects directly to your bank through a secure online feed. This eliminates manual data entry and speeds up the matching process.

When you reconcile in software like Xero, the system pulls each bank transaction and:

• suggests a match: pairs the transaction automatically with a corresponding entry in your accounts
• prompts for details: asks you to categorise unmatched transactions and adds them to your records

This approach reduces errors and saves significant time compared to manual reconciliation.

Make bank reconciliation quick and easy

Reconcile your accounts at least weekly to keep the process quick and manageable. Reconciling frequently means fewer transactions to review and clearer memory of transaction details.

Here's how to make reconciliation easier:

• Set a regular schedule: Block time weekly or daily for reconciliation
• Organise your records: Keep receipts, invoices, and statements easy to access
• Use software: Automate bank feeds and matching to save time
• Stay on top of it: Spend a few minutes daily rather than hours catching up monthly

Use Xero to streamline your bank reconciliation

Regular bank reconciliation keeps your financial records accurate, helps you catch errors early, and gives you confidence in your numbers. But manual reconciliation takes time you could spend running your business.

Xero makes bank reconciliation faster and easier:

• Automatic bank feeds: See transactions flow directly from your bank into Xero
• Smart matching: Review Xero's suggested matches for your transactions, then confirm and move on
• Real-time visibility: Check your reconciled balance anytime, from any device

Ready to spend less time on bookkeeping? Get one month free and see how Xero simplifies your bank reconciliation.

FAQs on bank reconciliation

Here are answers to common questions about bank reconciliation.

What is the formula for bank reconciliation?

The basic formula is: Bank statement balance + deposits in transit - outstanding cheques = adjusted bank balance. This adjusted balance should match your book balance after accounting for any unrecorded transactions.

How often should I do bank reconciliation?

Reconcile your accounts at least monthly, though weekly or daily reconciliation is ideal for businesses with high transaction volumes. More frequent reconciliation makes discrepancies easier to identify and resolve.

Can I do bank reconciliation in Excel?

Yes, you can reconcile in Excel using a simple spreadsheet to compare bank and book balances. However, accounting software like Xero automates much of the process and reduces the risk of manual errors.

What should I do if my reconciliation doesn't balance?

Review your work for missed transactions, duplicate entries, or data entry errors. Check that all bank fees, automatic payments, and pending transactions are recorded. If you still can't find the discrepancy, work backwards from your last successful reconciliation.

How long does bank reconciliation typically take?

Manual reconciliation can take 30 minutes to several hours depending on transaction volume. With accounting software that uses automatic bank feeds and smart matching, most small businesses can complete reconciliation in five to 15 minutes.