Bank reconciliation is the process of matching your accounting records to your actual bank statement — confirming that every transaction your books show corresponds to a real movement of cash, and vice versa. Done monthly, it's one of the most important financial controls a small business can run.
Why bank reconciliation matters
Without reconciliation, your books can diverge from reality in ways that compound over time:
- Duplicate entries — a payment recorded twice in your accounting system inflates expenses and reduces your reported cash balance
- Missed transactions — bank fees, automatic debits, or returned payments that never got recorded leave phantom balances
- Timing differences — cheques written but not yet cleared, or deposits in transit, create temporary differences that need to be tracked
- Fraud detection — unauthorised transactions show up in bank statements long before they show up in reports
A business that reconciles monthly catches these issues within weeks. A business that reconciles annually is operating on potentially 12 months of accumulated errors at year-end — often just before tax time.
The monthly reconciliation process: step by step
Step 1: Gather your bank statement
Get your bank statement for the period you're reconciling — usually the prior calendar month. Note the closing balance.
Step 2: Start from your book balance
Pull your GL cash account balance as of the same date. This is what your accounting system believes you have in cash.
Step 3: Identify and check off matching transactions
Go through both the bank statement and your accounting records line by line. For each transaction on the bank statement, find the corresponding entry in your books and mark it as cleared. For each entry in your books, find it on the bank statement.
Step 4: Investigate unmatched items
Any transaction on the bank statement with no corresponding book entry needs to be recorded: bank fees, interest earned, ACH debits, and bounced cheques are common examples. Any transaction in your books that's not on the bank statement is either in transit (a cheque not yet cleared) or an error.
Step 5: Reconcile to zero
The reconciliation is complete when:
Bank Statement Ending Balance + Deposits in Transit − Outstanding Cheques = Book Balance (adjusted)
The difference should be $0.00. If it's not, there's an error somewhere.
Using TallyArc for bank reconciliation
TallyArc's Bank Reconciliation feature (under Accounting → Bank Accounts → Reconcile) walks you through this process with a live difference calculator. Connect your bank account via Plaid or enter your statement ending balance manually, then check off transactions one by one. The running difference updates in real time — when it hits $0.00, you're done.
All completed reconciliations are stored in history so you can verify that every month has been closed, and re-open any period if a prior adjustment is needed.
Common reconciliation problems and how to fix them
| Problem | Cause | Fix |
|---|---|---|
| Balance won't reconcile | Missing transaction in books | Add the bank entry as a journal entry or bill/payment |
| Off by exactly 2× an amount | Entry posted to wrong side (debit vs credit) | Find and reverse the incorrect journal entry |
| Persistent small difference | Bank fee or interest not recorded | Record a journal entry for the unrecorded item |
| Prior month balance won't agree | Transaction added after closing | Check for any backdated entries and re-reconcile |
How often should you reconcile?
Monthly is the minimum. High-volume businesses should reconcile weekly. Very high-volume or fraud-sensitive businesses reconcile daily via automated matching.
The key insight is that reconciliation is most valuable when it's done frequently — catching errors when they're small and recent, rather than compounded and old.