Bank Reconciliation

Bank reconciliation is the process of comparing an organization's internal accounting records (general ledger cash balances) against bank statement balances to identify and resolve discrepancies, ensuring that reported cash positions are accurate and complete. The reconciliation process involves matching cleared transactions, identifying outstanding checks and deposits in transit, accounting for bank fees and interest, investigating unmatched items, and adjusting the books for any errors or omissions. For small businesses, bank reconciliation is a monthly exercise that takes 2–4 hours per account; for mid-market companies with 5–20 bank accounts across multiple entities and currencies, reconciliation can consume 40–80 staff hours per month. Common causes of reconciliation discrepancies include timing differences (checks issued but not yet cleared, deposits in transit), bank errors (misapplied transactions, incorrect fees), recording errors (transposition errors, duplication, omissions), and fraud (unauthorized withdrawals, check tampering). The IRS expects businesses to maintain reconciled bank records, and discrepancies between reported income and bank deposits are among the most common audit triggers. Unreconciled accounts carry significant risk: undetected errors can compound over time, and organizations have discovered embezzlement schemes lasting years because bank reconciliation was performed superficially or infrequently. Best practices include reconciling all accounts within 5 business days of statement receipt, investigating all variances over $100, maintaining segregation of duties between cash handling and reconciliation functions, and using automated reconciliation tools that match transactions using AI-powered algorithms. doola's bookkeeping service includes monthly bank reconciliation across all business accounts, ensuring accurate financial records and early detection of discrepancies for small business clients.