Summarise with AI
The four things that explain a difference
A reconciliation that will not balance is almost always one of these. Work through them in order.
- Deposits in transit — you banked it, the bank has not cleared it yet
- Unpresented payments — you issued it, the payee has not banked it yet
- Bank items not in your books — fees, interest, merchant charges and direct debits that hit the account without passing through your ledger
- Errors — a transposed figure, a duplicate, or a payment coded to the wrong account
The first two are timing and clear themselves next period. The third needs recording in your general ledger. The fourth is the one worth finding early.
Why the statement, not the app balance
Reconcile to the closing balance of the bank statement, not to the balance showing in a banking app. App balances often include pending transactions the statement has not yet closed, which produces a difference that is not really a difference.
The statement is also the document you keep. Business records must generally be retained for five years, and that includes the statements behind each reconciliation.
Why monthly beats yearly
An annual reconciliation is far more work than twelve monthly ones. Errors compound, old bank statements become harder to obtain, and by the time you find a duplicate supplier payment from March, the supplier relationship has moved on.
If you are registered for GST and lodge quarterly, reconcile each month before preparing the BAS. A BAS built on unreconciled books is usually a BAS you will have to revise.
Reconciling is not the same as matching a bank feed
A bank feed in Xero or MYOB imports transactions and suggests matches. That is useful, and much faster than working from paper — but accepting a feed match confirms the transaction exists, not that your books are complete or correctly coded.
A true reconciliation ties your closing ledger balance to the closing statement balance and explains the gap. Software will do that for you; the point is that clicking through a feed is not automatically the same thing.
Key takeaways
- A reconciliation ties your ledger cash balance to the bank statement
- Four causes explain nearly every difference: two are timing, one is unrecorded, one is error
- Use the statement closing balance, not the app balance
- Reconcile monthly, and before every BAS
- Matching a bank feed is not automatically a reconciliation
Download a free bank reconciliation template where the difference line is a formula that has to read $0.00, or browse the full shelf of free bookkeeping templates.
Wages are usually the largest and most variable line you reconcile — RosterElf calculates award rates before the timesheet reaches payroll.
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