What do you call a deposit that you have made and recorded in your register but does not appear on your bank statement yet?

6 Min. Read

June 16, 2022

To do a bank reconciliation you would match the cash balances on the balance sheet to the corresponding amount on your bank statement, determining the differences between the two in order to make changes to the accounting records, resolve any discrepancies and identify fraudulent transactions.

NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.

How Do You Reconcile a Bank Statement?

To reconcile a bank statement, the account balance as reported by the bank is compared to the general ledger of a business.

Businesses maintain a cash book to record both bank transactions as well as cash transactions. The cash column in the cash book shows the available cash while the bank column shows the cash at the bank.

Similarly, the bank too keeps an account for every customer. In the bank books, the deposits are recorded on the credit side while the withdrawals are recorded on the debit side. The bank sends the account statement to its customers every month or at regular intervals.

Sometimes these balances do not match. The business needs to identify the reasons for the discrepancy and reconcile the differences. This is done to confirm every item is accounted for and the ending balances match.

To do this, a reconciliation statement known as the bank reconciliation statement is prepared.

Bank Reconciliation: A Step-by-Step Guide

You receive a bank statement, typically at the end of each month, from the bank. The statement itemizes the cash and other deposits made into the checking account of the business. The statement also includes bank charges such as for account servicing fees.

Once you’ve received it, follow these steps to reconcile a bank statement:

1. COMPARE THE DEPOSITS

Match the deposits in the business records with those in the bank statement. Compare the amount of each deposit recorded in the debit side of the bank column of the cashbook with credit side of the bank statement and credit side of the bank column with the debit side of the bank statement. Mark the items appearing in both the records.

2. ADJUST THE BANK STATEMENTS

Adjust the balance on the bank statements to the corrected balance. For doing this, you must add deposits in transit, deduct outstanding checks and add/deduct bank errors.

Deposits in transit are amounts that are received and recorded by the business but are not yet recorded by the bank. They must be added to the bank statement.

Outstanding checks are those that have been written and recorded in cash account of the business but have not yet cleared the bank account. They need to be deducted from the bank balance. This often happens when the checks are written in the last few days of the month.

Bank errors are mistakes made by the bank while creating the bank statement. Common errors include entering an incorrect amount or omitting an amount from the bank statement. Compare the cash account’s general ledger to the bank statement to spot the errors.

3. ADJUST THE CASH ACCOUNT

The next step is to adjust the cash balance in the business account.

Adjust the cash balances in the business account by adding interest or deducting monthly charges and overdraft fees. 

To do this, businesses need to take into account the bank charges, NSF checks and errors in accounting.

• Bank charges are service charges and fees deducted for the bank’s processing of the business’ checking account activity. This can include monthly charges or charges from overdrawing your account. They must be deducted from your cash account. If you’ve earned any interest on your bank account balance, they must be added to the cash account.
• An NSF (not sufficient funds) check is a check that has not been honored by the bank due to insufficient funds in the entity’s bank accounts. This means that the check amount has not been deposited in your bank account and hence needs to be deducted from your cash account records.
• Errors in the cash account result in an incorrect amount being entered or an amount being omitted from the records. The correction of the error will increase or decrease the cash account in the books.

4. COMPARE THE BALANCES

After adjusting the balances as per the bank and as per the books, the adjusted amounts should be the same. If they are still not equal, you will have to repeat the process of reconciliation again.

Once the balances are equal, businesses need to prepare journal entries for the adjustments to the balance per books.

How Often Should You Reconcile Your Bank Account?

Ideally, you should reconcile your bank account each time you receive a statement from your bank. This is often done at the end of every month, weekly and even at the end of each day by businesses that have a large number of transactions.

Before the reconciliation process, business should ensure that they have recorded all transactions up to the end of your bank statement. Businesses that use online banking service can download the bank statements for the regular reconciliation process rather than having to manually enter the information.

What Is the Purpose of Bank Reconciliation?

The bank reconciliation process offers several advantages including:

• Detecting errors such as double payments, missed payments, calculation errors etc.
• Tracking and adding bank fees and penalties in the books
• Spot fraudulent transactions and theft
• Keeping track of accounts payable and receivables of the business

Bank reconciliation done through accounting software is easier and error-free. The bank transactions are imported automatically allowing you to match and categorize a large number of transactions at the click of a button. This makes the bank reconciliation process efficient and controllable.

More Resources on Small Business Accounting

RELATED ARTICLES

It depends. You should contact the bank and provide any details about the deposit, including a copy of the deposit receipt. However, the bank may not accept the deposit receipt as conclusive evidence that you deposited the funds in the amount shown on the receipt. If the deposit slip contains an error or the associated amount of cash or checks otherwise do not match, the bank has policies and procedures to reconcile the discrepancy.

If you deposited a check, contact the party that provided the check to you and obtain a copy of the front and back of the check. Provide the copy of the canceled check along with the receipt when you contact the bank.

If you deposited cash, and the bank does not honor the receipt, you may need to seek legal assistance to resolve the issue.

Last Reviewed: April 2021

Please note: The terms "bank" and "banks" used in these answers generally refer to national banks, federal savings associations, and federal branches or agencies of foreign banking organizations that are regulated by the Office of the Comptroller of the Currency (OCC). Find out if the OCC regulates your bank. Information provided on HelpWithMyBank.gov should not be construed as legal advice or a legal opinion of the OCC.

Plus, there’s something Zen about bank reconciliations. They are about finding balance, after all.

So, assume the full lotus position or just find a comfy chair. We’re going to look at what bank statement reconciliation is, how it works, when you need to do it, and the best way to manage the task.

When you “reconcile” your bank statement or bank records, you compare it with your bookkeeping records for the same period, and pinpoint every discrepancy. Then, you make a record of those discrepancies, so you or your accountant can be certain there’s no money that has gone “missing” from your business.

Bank reconciliations aren’t limited to just your bank accounts. Any credit cards, PayPal accounts, or other accounts with business transactions should be reconciled.

If you do your bookkeeping yourself, you should be prepared to reconcile your bank statements at regular intervals (more on that below). If you work with a bookkeeper or online bookkeeping service, they’ll handle it for you.

You only need to reconcile bank statements if you use the accrual method of accounting. This is to confirm that all uncleared bank transactions you recorded actually went through.

If, on the other hand, you use cash basis accounting, then you record every transaction at the same time the bank does; there should be no discrepancy between your balance sheet and your bank statement.

Not sure which accounting method you’re using? This article on cash vs. accrual accounting will make it clear.

In huge companies with full-time accountants, there’s always someone checking to make sure every number checks out, and that the books match reality. In a small business, that responsibility usually falls to the owner (or a bookkeeper, if you hire one. If you don’t have a bookkeeper, check out Bench).

Bank reconciliations may be tedious, but the financial hygiene will pay off. Here’s why it’s a great idea to do them.

1. To see your business as it really is

When you look at your books, you want to know they reflect reality. If your bank account, credit card statements, and your bookkeeping don’t match up, you could end up spending money you don’t really have—or holding on to the money you could be investing in your business. This can also help you catch any bank service fees or interest income making sure your company’s cash balance is accurate.

2. To track cash flow

Managing cash flow is a part of managing any business. Reconciling your bank statements lets you see the relationship between when money enters your business and when it enters your bank account, and plan how you collect and spend money accordingly.

3. To detect fraud

Reconciling your bank statements won’t stop fraud, but it will let you know when it’s happened.

For instance, you could pay a vendor by check, but they could tamper with it, making the amount withdrawn larger, and then cash it. You wouldn’t know until the bank charges your account. The discrepancy would show up while you reconcile your bank statement.

Or you might share a joint account with your business partner. When they draw money from your account to pay for a business expense, they could take more than they record on the books. You’d notice this as soon as you reconcile your bank statement.

Hopefully you never lose any sleep worrying about fraud—but reconciling bank statements is one way you can make sure it isn’t happening.

4. To detect bank errors

It’s rare, but sometimes the bank will make a mistake. If there’s a discrepancy between your accounts and the bank’s records that you can’t explain any other way, it may be time to speak to someone at the bank.

5. To stay on top of accounts receivable

If you use the accrual system of accounting, you might “debit” your cash account when you finish a project and the client says “the cheque is going in the mail today, I promise!”. Then when you do your bank reconciliation a month later, you realize that cheque never came, and the money isn’t in your books (even though your bookkeeping shows you got paid).

Bank reconciliations are like a fail-safe for making sure your accounts receivable never get out of control. And if you’re consistently seeing a discrepancy in accounts receivable between your balance sheet and your bank, you know you have a deeper issue to fix.

To make things easier, start with a free template to work off of.

When you do a bank reconciliation, you first find the bank transactions that are responsible for your books and your bank account being out of sync. This lets you match balances. Then, you record what you did to match the balances.

We’ll go over each step of the bank reconciliation process in more detail, but first—are your books up to date? They need to be in order for the bank reconciliation to work. If you’ve fallen behind on your bookkeeping, use our catch up bookkeeping guide to get back on track (or hire us to do your catch up bookkeeping for you).

You have two cash balances to check: the cash recorded on your bank statements and the “cash account” section of your bookkeeping records.

More specifically, you’re looking to see if the “ending balance” of these two accounts are the same over a particular period (say, for the month of February).

The balance recorded in your books (again, the cash account) and the balance in your bank account will rarely ever be exactly the same, even if you keep meticulous books.

One reason for this is that your bank may have service charges or bank fees for things like too many withdrawals or overdrafts. Or there may be a delay when transferring money from one account to another. Or you could have written a NSF check (not sufficient funds) and recorded the amount normally in your books, without realizing there wasn’t insufficient balance and the check bounced.

Two important terms to know:

1. Outstanding check/withdrawal. This is a check or money transfer you’ve issued and recorded on your books which is still uncleared.

2. Outstanding deposit/receipt. (Also called deposits in transit.) This is money that has been received by your company and recorded on the books, but which has not been processed by the bank.

There’s nothing harmful about outstanding checks/withdrawals or outstanding deposits/receipts, so long as you keep track of them.

Once you’ve figured out the reasons why your bank statement and your accounting records don’t match up, you need to record them. There are two ways to do this.

Option 1: Adjusting journal entries. Journal entries are how you record all your transactions (sometimes called debits and credits). All your journal entries are gathered in the general ledger. If you’re not using accounting software, then this is probably an Excel sheet or a handwritten document. At the end of the period for which you’re reconciling your bank statements, make a note recording why there’s a discrepancy between your bank transactions and your ledger.

Option 2: A bank reconciliation statement. This contains the same information as an adjusting journal entry, but it’s kept on file as a separate document.

The method you choose is up to personal preference and need. Consider when or why you might need to look back through your financial records for your bank reconciliation, and which method of recording will make the task easier for you based on how you keep your records.

For the most part, how often you reconcile bank statements will depend on your volume of transactions.

Some businesses, which have money entering and leaving their accounts multiple times every day, will reconcile on a daily basis.

For example, a restaurant or a busy retail store both process a lot of transactions and take in a lot of cash. They might reconcile on a daily basis to make sure everything matches and all cash receipts hit the bank account. On the other hand, a small online store—one that has days when there are no new transactions at all—could reconcile on a weekly or monthly basis.

It’s important to keep up to date. The more frequently you reconcile your bank statements, the easier it is each time.

For instance, if you haven’t reconciled your bank statements in six months, you’ll need to go back and check six months’ worth of line items. Whether this is a smart decision depends on the volume of transactions and your level of patience.

It’s best to have a regular schedule. Decide how frequently you’ll reconcile, then stick to it. This will ensure your unreconciled bank statements don’t pile up into an intimidating, time-consuming task. And it will keep you in tune with your business’s cash flow.

Suppose you run a business called Greg’s Popsicle Stand. You can do a bank reconciliation when you receive your statement at the end of the month or using your online banking data.

There are three steps: comparing your statements, adjusting your balances, and recording the reconciliation.

First, you compare your bank statement for the month of February with your cash book balance for the end of February. They look like this:

Bank balance: $1,081

Cash book balance: $1,200

Second, you go through your bank statement, and find the following line items not included in your cash book:

Email money transfer fees, multiple dates: $7

Checking account fee on Feb. 28: $12

Third, you go through your cash book, and find the following line items not included in your bank statement:

Check deposited on Feb. 27: $8

Check deposited on Feb. 28: $4

Check issued on Feb. 28: $20

With that information, you can now adjust both the balance from your bank and the balance from your books so that each reflects how much money you actually have.

Original balance: $1,081

Step 1: Add outstanding deposits

Step 2. Deduct outstanding withdrawals

Adjusted balance: $1,181

Adjustments to books balance:

Original balance: $1,200

Step 1: Add outstanding deposits

Step 2: Deduct outstanding withdrawals

Adjusted balance: $1,181

Now your bank statement shows the same end-of-month balance for February as your books: the real balance of $1,181.

When you record the reconciliation, you only record the change to the balance in your books. The change to the balance in your bank account will happen “naturally”—once the bank processes the outstanding transactions.

You have two options for recording your bank reconciliation. One is making a note in your cash book (faster to do, but less detailed), and the other is to prepare a bank reconciliation statement (takes longer, but more detailed).

A cash book note:

At the bottom of your spreadsheet for February, add this note, tracking changes to your balance.

Bank Reconciliation

Bank reconciliation statement:

Business name: Greg’s Popsicle Stand

Bank statement date: February 28, 2018

Bank account: Business Checking

Outstanding Withdrawals

Outstanding Deposits

Reconciliation

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For some entrepreneurs, reconciling bank transactions creates a sense of calm and balance. For others, it makes DIY bookkeeping that much more stressful. If you’re in the latter category, it may be time to think about hiring a bookkeeper who will do the reconciling for you.

If you’re looking for a good bookkeeper, check out Bench. We’re North America’s largest bookkeeping service. We’ll take bookkeeping completely off your hands (and deal with the bank reconciliations too).