How to reconcile a bank statement, step by step
Reconciling means checking your own records against the bank's statement until the two agree to the cent. It takes a few minutes a month and catches missing transactions, duplicates, fees and mistakes while they're still easy to fix. Here is how, with a worked example.
What reconciling is
Your statement says what the bank thinks happened in an account over a period. Your records, whether an app, a spreadsheet or a check register, say what you think happened. Reconciling is going through the statement line by line and making the two agree.
The test is simple: the starting balance plus every transaction on the statement must equal the statement's ending balance. When your checked transactions add up to that number, the account is reconciled.
What you need
- The statement, paper or PDF, with its starting balance, its ending balance and the period it covers.
- Your records for the same account.
- The ending balance of the last statement you reconciled. It should be this statement's starting balance.
Reconcile it in six steps
- Check the starting balance. The statement's starting balance should match the ending balance of the last one you reconciled. If it doesn't, the previous month needs looking at first.
- Tick off each statement line in your records. Go down the statement and find each transaction in your records with the same amount. Dates often differ by a day or two; amounts don't.
- Add what's on the statement but not in your records. Usually a bank fee, interest, or an automatic payment you forgot. Record it, then tick it.
- Leave alone what's in your records but not on the statement. A check not cashed yet or a payment still pending belongs to next month's statement. Don't tick it, and don't delete it.
- Compare the totals. The starting balance plus everything you ticked should equal the statement's ending balance. The gap between them is the difference, and you're done when it's $0.00.
- Mark it reconciled. Note the statement date and lock or flag the transactions you ticked, so a later edit can't quietly undo the check.
A worked example
The statement starts at $2,450.00, matching last month's ending balance, and ends at $2,865.24. Going down it:
| On the statement | Amount | In your records? |
|---|---|---|
| Paycheck | $2,100.00 | Yes: tick it |
| Rent | −$1,400.00 | Yes: tick it |
| Grocery store | −$186.42 | Yes: tick it |
| Electric company | −$94.17 | Yes: tick it |
| Monthly service fee | −$5.00 | No: add it, then tick it |
| Interest paid | $0.83 | No: add it, then tick it |
| Starting balance + ticked | $2,450.00 + $415.24 = $2,865.24 | |
Your records also hold one thing the statement doesn't: check #1042, not cashed yet, for $60.00. It stays unticked and will appear on next month's statement.
The starting balance plus the ticked lines comes to $2,865.24, the statement's ending balance, so the difference is $0.00 and the account is reconciled. The fee and the interest were the only things missing; without reconciling, the account would have been $4.17 out and nobody would have known why.
When it doesn't balance: finding the difference
Look at the size of the difference first. It usually points straight at the cause:
- It matches a transaction. Search your records and the statement for that exact amount: something is missing on one side, or recorded twice.
- It's twice a transaction. Halve it and search again: an amount was entered with the wrong sign, a refund recorded as a purchase or the other way round.
- It divides evenly by 9. Two digits are probably swapped: $54.00 typed as $45.00 is a difference of $9.00.
- It's the same as last month's. The previous statement wasn't really reconciled, or the starting balance is wrong. Fix that one first.
- It's small and odd. Look for interest, a fee, or a card payment whose amount changed with a tip or a currency conversion.
Fix the cause, never the total. Adding an "adjustment" for the difference makes the numbers agree today and hides the mistake for good.
Reconciling a credit card statement
It works the same way, with the signs reversed: on a card statement, purchases increase the balance you owe and payments reduce it. Start from the previous statement's balance owed, tick the purchases, payments, interest and fees, and check you arrive at the new balance owed. Pending charges, like uncashed checks, wait for next month.
How often to reconcile
Every statement, as soon as it arrives: monthly for most accounts. A month is short enough that you still remember the transactions, and each reconciliation starts from a balance you've already checked. Leaving it for a year means hunting for one mistake among hundreds of transactions.
Common questions
What is the difference between balancing a checkbook and reconciling?
They mean the same thing. Balancing a checkbook is the older name for reconciling a checking account against its statement.
Do I need to reconcile if my app downloads transactions from my bank?
Yes. Downloads can miss transactions, repeat them, or change when a pending charge settles, and a downloaded record is only as good as your categorizing. Reconciling against the statement is what proves the balance is right.
What if the bank made the mistake?
It happens rarely, but it happens. Note the transaction, call or message the bank with the statement in front of you, and leave that one unticked until it is corrected on a later statement.
Should I reconcile savings and credit card accounts too?
Yes, every account with a statement. Savings accounts are quick, often just interest; credit cards are where duplicate charges and forgotten subscriptions show up.
Reconciling in ShowMeTheMoney
ShowMeTheMoney, the envelope budgeting app, follows exactly these steps:
- On import: accepting a statement's transactions reconciles the account against that statement when they come to its closing balance. When they don't, you're told by how much, with the statement's dates and balances already filled in.
- By hand: the starting balance comes from the previous reconciliation, you tick each line, add a missing fee or interest without leaving the page, and the difference updates as you go. It finishes only at exactly $0.00.
- Locked once it balances: reconciled transactions can't be edited by accident, and a mistake can still be put right on purpose.