Bank reconciliation compares the company's ledger with the bank statement for the same period. The two rarely agree at first, because of timing: cheques not yet cleared, deposits in transit, and bank charges recorded by the bank but not yet in the ledger. The work is explaining every difference, not forcing the totals to match.
Working through the differences
- Start from the bank balance and adjust for timing items, rather than editing ledger entries to fit.
- Investigate bank charges and interest in the statement, since these are often missing from the ledger entirely.
- Check old outstanding items first: an item outstanding for months is usually an error, not timing.
- Never clear an old item by writing it off without approval and a documented reason.
Reconcile frequently, not just at month end. Weekly reconciliation keeps differences small and causes fresh in memory.