How to do a bank reconciliation

A bank reconciliation explains the difference between the bank balance in your books and the balance on the bank statement. Match every item that appears in both, then list what is only in the books (cheques not yet cleared, deposits in transit) and what is only on the statement (bank charges, interest, direct transfers). Record the statement-only items; the two adjusted balances must then agree.

Step by step

1. Get the bank statement for the month and the bank account ledger from your books for the same dates.
2. Tick every deposit and payment that appears in both, matching amounts and references.
3. List the items only in your books: cheques you issued that the bank has not paid yet (outstanding cheques) and deposits the bank has not credited yet (deposits in transit).
4. List the items only on the statement: bank charges, interest, direct transfers from customers, and returned cheques.
5. Record the statement-only items in your books with journal entries.
6. Prepare the reconciliation: statement balance + deposits in transit − outstanding cheques = adjusted book balance. If it does not agree, look for errors in amounts or dates.
7. Follow up any cheque outstanding for months: it may need to be cancelled or reissued.

Worked example

Bank statement balance on 31 May: EGP 58,000. Deposit in transit: EGP 7,000. Outstanding cheque: EGP 12,500. Adjusted bank balance = 58,000 + 7,000 − 12,500 = EGP 52,500.

Books balance: EGP 53,100. Bank charges on the statement not yet recorded: EGP 600. Adjusted book balance = 53,100 − 600 = EGP 52,500. Both sides agree, so the reconciliation is complete once the EGP 600 charge is posted.

How often?

At least monthly for every bank account, as soon as the statement arrives, and always before the VAT return and the year-end close. The longer you wait, the harder differences are to trace.