How to reconcile a bank statement and avoid costly errors

Bank reconciliation is the process of comparing your internal financial records with your bank statement to verify that both show the same amount of cash. When these two numbers don't match, you need to find out why and adjust one or both sets of records until they align.

The end goal of reconciling a bank statement is knowing exactly how much cash you actually have available to spend. You can't make good business decisions about payroll, vendor payments, or growth investments without that answer.

Gathering the right materials before diving in saves time and prevents frustration. Start with your bank statement, whether that's a paper copy or accessed through your online banking portal. Most banks now offer convenient access through digital platforms and maintain 12 to 24 months of history. If you haven't set up online banking access yet, contact your bank about getting set up.

You'll also need your own financial records. This could be a check register, transaction ledger, or accounting software like QuickBooks, Xero, or even a well-organized Excel spreadsheet. A well-maintained paper ledger works just as well if that's what you prefer.

The bank reconciliation process becomes much more manageable when you follow a clear system. Here are 8 steps that will help you reconcile your bank statement efficiently and accurately.

Step 1: Gather necessary documents

Start by assembling all your financial documents. You'll need your monthly bank statement, which you can access from your online portal or email, your checkbook register or accounting software, and any receipts or invoice copies that support your transactions.

Create a dedicated folder on your computer or a physical file to keep these organized. This small step can save you hours of searching later when you need to track down a mystery transaction or resolve a discrepancy.

Step 2: Review bank transactions

Now go through your bank statement carefully. Look at each deposit and withdrawal, confirming that the amounts match what you expected. Pay attention to items that are easy to miss: monthly maintenance fees, ATM charges, or interest earned on your account balance.

Take your time with this step. Rushing through it is where most people let problems slip through. Once you've scanned the entire statement, you'll start to notice spending patterns and can catch any unusual activity before it becomes an issue

Step 3: Match transactions

This is the most detail-oriented part of reconciliation. Go through your records and systematically compare each entry against your bank statement. Verify not just the amount but also the date and description to catch any inconsistencies.

As you confirm each match, develop a simple marking system. A highlighter, checkmark, or note in your accounting software works well. This visual confirmation prevents the common mistake of double-checking transactions or missing them entirely. Many people find it helpful to use different colored highlighters for different transaction types so patterns become easier to spot.

Step 4: Identify discrepancies

As you work through your marked transactions, some entries will stand out as mismatches. This is where the detective work begins, and it's a completely normal part of the process.

The most common reasons for mismatches are outstanding transactions. These are checks you've written that are still in the mail or electronic payments that haven't fully processed yet. You might also find missing transactions that exist in your records but haven't appeared on your statement, or vice versa.

Document each discrepancy carefully. Write down the details, amount, and what you think caused the mismatch. Create a separate list so each one gets proper attention. Understanding why differences exist helps prevent similar issues in the future.

Step 5: Adjust your records

Now it's time to fix any problems you've found. Start by adding any transactions that appeared on your bank statement but somehow slipped through your recordkeeping. These might be automatic payments you forgot to log or deposits you overlooked.

When you find errors in your records, fix them clearly. Instead of erasing or deleting, simply correct the entry so there's a clear audit trail showing what changed and when. For outstanding transactions still in limbo, create a tracking list and review it regularly to make sure nothing stays outstanding for too long. This approach ensures accuracy and helps prevent oversights going forward.

Step 6: Calculate your balances

With your records adjusted, it's time for the critical step: calculating your final balances to make sure everything aligns. Start with your previous reconciled balance, then add any new deposits and subtract all withdrawals, including those still pending or needing correction.

Keep the same precision you've used throughout. Even a small math error at this stage can undo hours of careful work. Your final number should match your bank statement balance exactly. If it doesn't, retrace your steps through the previous adjustments to find where the discrepancy is.

Step 7: Final review

Do a thorough quality check before you finish. Revisit your calculations with fresh eyes, paying special attention to those outstanding transactions you identified earlier and confirming that each is properly documented.

Verify that your adjusted balance matches your bank statement's ending balance. When these numbers align, you know your accounts are truly reconciled. If they don't match, it's better to catch the problem now than discover it later. Completing this final review successfully is a critical step on your month end close checklist. Once your numbers align, you can confidently check this item off before moving forward with the rest of your financial close process.

Step 8: Document the reconciliation process

Archive both digital and physical copies of your bank statement and reconciliation worksheets where you can find them easily. This creates a record that becomes valuable during tax season or future financial reviews. If you encountered any issues during reconciliation, document not just the problems but also your solutions. These notes become helpful references when similar situations come up again. Set a recurring calendar reminder for the same day each month to make reconciliation a habit. Monthly reconciliation strikes the right balance between maintaining accurate records and managing your time efficiently.

Let's walk through a real bank reconciliation to show how it works in practice. This example illustrates several common discrepancies you might encounter.

Bank Reconciliation Statement December 31, 2025

This example demonstrates several common reconciliation scenarios:

1. Deposits in transit ($1,075): These are deposits you've recorded in your books but haven't yet appeared on your bank statement, typically due to processing timing.
2. Outstanding checks ($455): Checks you've written and recorded but that haven't cleared the bank yet.
3. Bank fees ($45): Charges that appear on your statement but weren't previously recorded in your books.
4. Interest earned ($15): Interest the bank has added to your account that needs to be recorded in your books.
5. NSF (Non-Sufficient Funds) check ($20): A returned check that the bank has charged to your account.

When properly reconciled, your adjusted bank balance should equal your adjusted book balance; in this case, $5,870.00. This alignment confirms that all transactions have been properly accounted for and any discrepancies have been identified and resolved.

When you reconcile your bank account, you'll typically encounter a standard set of adjustments that explain why your book balance and bank balance don't match. Common bank reconciliation adjustments are timing issues and unrecorded transactions that explain discrepancies between your bank balance and book balance, including outstanding checks, deposits in transit, bank fees, and interest earned or charged by the bank.

Outstanding checks

Outstanding checks are checks you've written, recorded in your books, and sent to recipients, but they haven't cleared the bank yet. It's normal for checks to take several days to clear, especially if they're mailed rather than deposited electronically.

How to fix it: Create a list of all checks you've written but that don't yet appear on your bank statement. Subtract these amounts from your bank balance during reconciliation. As the checks clear in the coming days, they'll appear on your next statement and you can remove them from your outstanding checks list. If a check remains outstanding for more than two weeks, follow up with the recipient to confirm they received it.

Deposits in transit

Deposits in transit are payments you've received and recorded in your books but the bank hasn't processed yet. This commonly happens when you make deposits near the end of the business day or when there are processing delays in the banking system.

How to fix it: List all deposits you've made but that haven't yet appeared on your bank statement. Add these amounts to your bank balance during reconciliation. Most deposits clear within one to two business days. If a deposit doesn't appear within three business days, contact your bank to track it down. In rare cases, a deposit might get lost in the mail or in the bank's processing system.

NSF checks

NSF stands for non-sufficient funds. Sometimes a customer pays you with a check that bounces because they don't have sufficient funds. The bank returns the check and charges your account a fee.

How to fix it: When you discover an NSF check during reconciliation, first record the fee that the bank charged you. Then remove the original deposit from your records since those funds never actually posted to your account. Follow up with the customer who wrote the bad check. You might ask them to resubmit payment via electronic transfer or a certified check, and they should cover the NSF fee your bank charged you.

Bank fees and interest

Banks charge fees for various services like monthly account maintenance, overdraft protection, wire transfers, or ATM usage. They also credit interest on accounts that earn it. These items appear on your bank statement but might not be in your books yet.

How to fix it: Review your bank statement line by line to identify every fee and interest credit. Write down each one with its amount and description. For fees, create a journal entry to increase your expenses and reduce your cash balance. For interest, create an entry to increase your cash balance and record the interest income. Add the interest to your bank balance adjustment and subtract the fees.

Bank errors

Occasionally the bank makes a mistake processing a transaction. They might charge you twice for the same transaction, credit a deposit to the wrong account, or process a check for an incorrect amount.

How to fix it: When you spot a bank error, document it carefully. Take a screenshot or print the relevant section of your bank statement. Call your bank and explain the error, providing your documentation. Most banks can correct simple errors within one to two business days. Ask the bank to confirm the correction in writing. Once corrected, your next statement will reflect the adjustment and reconciliation will be easier.

Timing differences

Beyond the specific items above, many discrepancies simply come down to timing. The bank processes transactions on their schedule, which doesn't always match when you record them. These timing differences clear themselves naturally as the banking system catches up.

How to fix it: Don't try to force timing differences to reconcile immediately. Instead, document them in your outstanding items list and move on. Check your next month's statement to see if the items have cleared. Most timing differences resolve within a few days. If an item remains unresolved after a month, investigate further to determine if it's actually an error or a missing transaction that needs to be recorded.

Bank reconciliation doesn't have to be painful. These best practices help streamline the process and make it more manageable.

Reconcile your bank statement regularly

Monthly reconciliation allows you to catch discrepancies while transactions are still fresh and documentation is easy to find. Set a recurring calendar reminder for the same day each month, ideally within a few days of receiving your statement.

Use accounting software or online banking tools

Startup accounting software has revolutionized reconciliation. Platforms like QuickBooks Online, QuickBooks Desktop, Xero, and Quicken all offer automated reconciliation features that match transactions to your bank data, flag discrepancies, and maintain audit trails showing all your financial activity. Many tools also offer mobile apps so you can capture receipts and record transactions in real time. Whether you're reconciling in QuickBooks, Xero, or another platform, the core reconciliation process remains the same, but the software handles the tedious matching work for you.

Double-check all calculations

Small math errors can create problems down the road. Verify each calculation multiple times using different methods. A calculator, spreadsheet, and mental math as cross-checks can all help catch errors.

Keep accurate records of all transactions

Comprehensive record-keeping forms the foundation for smooth reconciliation. Create a systematic approach to organizing and managing receipts, invoices, and transaction records whether you store them digitally or physically. Use consistent naming for files and folders so you can find specific transactions quickly.

Address discrepancies immediately

Don't let small differences pile up. Investigate any differences between your records and bank statements right away, no matter how minor they seem. Create a standard process for investigating issues, including a checklist of common causes and a clear path for unresolved problems.

Consistent bank reconciliation is more than a routine task. It's a strategic move that protects and strengthens your finances in several ways.

Detecting errors (accuracy and peace of mind)

Bank reconciliation serves as your most reliable tool for catching errors before they snowball into larger problems. Regular reconciliation identifies a wide range of discrepancies, from bank mistakes like duplicate charges to personal oversights like forgotten transactions or incorrect amounts. A deposit credited to the wrong account, an ATM withdrawal recorded at the wrong amount, or an automatic payment processed twice are all things you'll catch. When errors are caught early through reconciliation, they're usually simple to fix. Left undiscovered, they create a ripple effect through your entire financial picture, affecting everything from daily budget management to annual tax preparation.

Identifying fraudulent activity

Regular bank reconciliation acts as a powerful shield against financial fraud by helping you spot unauthorized activity quickly. While banks have sophisticated security systems, your personal review during reconciliation often catches suspicious transactions that automated systems miss. Watch for telltale signs: transactions in unusual locations, purchases that don't match your normal spending patterns, or small test charges that often precede larger fraudulent transactions. The sooner you identify fraud, the better your chances of recovering funds and preventing further damage.

Maintaining accurate financial records

Regular bank reconciliation creates the foundation of reliable record-keeping. This consistent practice ensures every dollar is accounted for, creating a trustworthy foundation for key financial activities from budgeting to making investment decisions. With reconciled records, you can confidently track spending patterns, prevent cash flow problemsand identify areas where you might need to adjust your financial strategy.

For startups and growing businesses, this precision is especially valuable. Accurate financial records not only simplify tax preparation but also provide the detailed financial history that potential investors and lenders require. When your records align with your bank statements, you gain both the confidence to make informed decisions and the documentation to support them.

Improved budgeting and financial planning

Bank reconciliation gives you a clear window into your actual financial position. Regular reconciliation reveals your real cash flow patterns, helping you create realistic budgets based on verified data rather than estimates. By tracking discrepancies and reviewing patterns during reconciliation, you can spot unexpected expenses, identify areas where spending regularly exceeds budget, and discover cost savings opportunities.

This detailed understanding of your financial movements empowers you to make informed decisions about future spending, set achievable financial goals, and develop strategies to meet them. Whether you're planning for business expansion or working toward specific financial targets, the accurate picture provided by regular reconciliation becomes the foundation for successful planning.

Running a business demands enough of your attention without spending hours on manual reconciliation tasks. Brex's integrated platform, designed with startups and growing companies in mind, simplifies this process by automatically capturing receipts, tracking transactions in real time, and separating personal and business expenses as they happen. As transactions occur on a Brex corporate card, they seamlessly match with statements, instantly flagging any discrepancies that need attention and putting an end to hours spent comparing statements line by line.

Brex's spend management software helps you track business expenses and automates the grunt work of reconciliation by capturing and organizing receipt data automatically. Instead of sorting through paper documents and manually matching transactions, you get all supporting documentation organized and accessible when you need it. This streamlined approach saves valuable time while ensuring nothing gets missed.

Richard Mensah, founder and CEO of Salley, which automates organizational and team effectiveness for enterprises, says: “Brex is our main comprehensive solution for everything finance-related. We use it for credit cards, we use it to manage our banking. We love the points, we love the perks that come with being a customer. And I do believe that Brex is one of the only solutions out there focusing on solving the problem in its entirety.”

Beyond basic banking, Brex's accounting automation software takes bank and expense reconciliation to the next level by directly integrating with popular accounting platforms. Expenses are automatically categorized, data entry is eliminated, and detailed reports are generated instantly. This automation frees your team from tedious reconciliation tasks so you can focus on what truly matters: analyzing financial data and making informed business decisions.