Bank reconciliation basics

What it is

Bank reconciliation is the process of matching the transactions in your accounting records to the lines on your bank statement. The goal: every line accounted for, no unexplained gaps in either direction.

Why it matters

• Catches errors — duplicate invoices, missing transactions, wrong amounts
• Defends against HMRC enquiries — reconciled books are credible; unreconciled ones invite suspicion
• Required for MTD compliance — your accounting software needs accurate transaction-level data
• Spots fraud or theft — unauthorised transactions surface during reconciliation

How to do it (monthly)

1. Pull the bank statement for the month (or use an automated bank feed)
2. Match each line to a transaction in your books
3. Investigate any unmatched bank lines — record any missing transactions
4. Investigate any unmatched book lines — usually pending or duplicate entries
5. Confirm the closing bank balance matches the bank statement
6. Save the reconciliation as evidence

Common issues

• Bank fees and interest — easy to miss when manually entering transactions
• Standing orders and direct debits — recurring entries that get forgotten
• Cheques in transit — issued but not yet cleared
• Cash deposits not yet processed — between deposit and bank credit
• Wrong-amount duplicates — entered twice with one off by a digit

How software helps

Cloud bookkeeping platforms with bank feeds reconcile in seconds — they pull transactions automatically and let you match in bulk. The work shifts from data entry to investigation, which is what reconciliation is supposed to be.