Glossary
Bank Reconciliation Process
A bank reconciliation process is the routine of matching your internal accounting records against your bank statement, line by line, until the two agree or every difference is explained. It exists to catch errors, timing gaps, and fraud before they compound into a bigger problem. At Treewalk, we treat it as a control, not a chore: it’s one of the first things we tighten when we take over a client’s books, because a clean reconciliation is the foundation every other financial report sits on.
What is the bank reconciliation procedure?
The procedure itself is simple. You start with the ending balance on your bank statement and the ending balance in your general ledger cash account, then you account for every difference between them: deposits in transit that haven’t cleared, outstanding cheques, bank fees you haven’t recorded yet, and any errors on either side. When the adjusted balances match, the reconciliation is complete.
What trips people up isn’t the math. It’s discipline. A reconciliation done once a quarter, or worse, once a year at tax time, isn’t a control. It’s an autopsy. The value comes from doing it monthly, tied to your close, so problems surface while they’re still small.
What are the 5 steps for bank reconciliation?
Most reconciliations follow the same five steps, whether you’re doing it in a spreadsheet or inside your accounting software:
- Gather your records. Pull the bank statement for the period and your internal cash ledger for the same dates.
- Match transactions. Compare each deposit, withdrawal, and cheque against the bank statement, one line at a time.
- Identify the gaps. Flag anything that appears on one record but not the other: outstanding cheques, deposits in transit, bank fees, interest earned, or NSF items.
- Adjust the books. Post journal entries for anything the bank caught that your ledger hadn’t recorded yet.
- Confirm the balances agree. The adjusted bank balance and the adjusted book balance should match exactly. If they don’t, you keep tracing until you find the difference.
That fifth step is where most in-house teams give up too early. A reconciling item gets “plugged” instead of explained, and that plug becomes a permanent resident on the balance sheet.
Why the process breaks down as a business grows
Bank reconciliation is easy at low transaction volume and gets harder fast once a business adds locations, payment methods, or headcount. We’ve seen clearing accounts that never actually clear because staff adjust discrepancies away rather than asking what caused them. We’ve seen a single bookkeeper carrying reconciliations for a multi-location operation until the books ran two to three months behind, because the process was never built to scale past one person.
What you want is you want to be doing almost nothing as part of month end: adjusting journal entries, reviewing, and that is it. A controller trains a team underneath them to do the work.
That’s the standard we hold ourselves to. A five-day close is a point of pride for a controller, and it’s only possible when reconciliation is a daily or weekly habit, not a scramble that happens the week before financials are due.
Is bank reconciliation legally required?
There’s no statute in Canada that says “you must reconcile your bank account.” But it’s effectively mandatory in practice. Lenders, auditors, and the Canada Revenue Agency all expect accurate books, and accurate books are impossible without regular reconciliation. If your organization is audited, whether by a lender covenant, a grant funder, or a regulator, an unreconciled cash account is one of the first things that gets flagged. For public companies and organizations moving toward Public Sector Accounting Standards, it’s a baseline control, not optional hygiene.
What is the journal entry for bank reconciliation?
The reconciliation itself doesn’t generate one entry. It generates whatever entries are needed to bring your ledger in line with reality. Common examples: a debit to bank fees and a credit to cash for charges you hadn’t recorded, a debit to cash and a credit to interest income for interest earned, or an entry to write off a stale outstanding cheque. The reconciliation is the diagnostic. The journal entries are the treatment.
Frequently asked questions
How often should we reconcile our bank accounts?
Monthly at minimum, tied to your close calendar. High-volume accounts, especially operating accounts with daily activity, benefit from weekly reconciliation so discrepancies get caught while the transaction is still fresh in someone’s memory.
Is bank reconciliation the same as bookkeeping?
No. Bookkeeping is recording transactions. Reconciliation is verifying that what you recorded matches what actually happened at the bank. You can have tidy bookkeeping and still miss a wire sent to the wrong payee if nobody reconciles.
Can accounting software do this automatically?
Software can match transactions that are clean and obvious, which speeds up the mechanical part. It won’t catch a mispostied entry, a duplicate payment, or a control gap. Someone still needs to review what the software can’t match and ask why.
What happens if reconciliations fall behind?
Small errors compound. We’ve walked into engagements where books were three to four years behind and every month added another layer of unreconciled activity to untangle. The cleanup cost climbs the longer it waits.
Where to next
If your reconciliations are a monthly fire drill instead of a five-minute review, that’s usually a sign the underlying controllership function needs attention, not just the spreadsheet. Our private companies team builds the close cadence, segregation of duties, and reconciliation discipline that make bank reconciliation boring again. You can also see how this fits into the broader picture on our services page.
