What is Bank Reconciliation?

At its core a bank reconciliation is a detective control: it proves that the cash balance in the ledger reflects what the bank actually holds. The bookkeeper starts with the bank statement balance, adds deposits in transit, subtracts outstanding cheques, adjusts for bank fees or interest not yet recorded in the books, and arrives at the adjusted book balance. If the two numbers match, the reconciliation is complete; if they do not, the discrepancy is hunted down — a missing entry, a transposed digit, an unrecorded fee.

Reconciliations are not limited to bank accounts. Credit-card statements, supplier statements, payroll tax remittances, and inventory counts all get reconciled against the ledger on the same principle: independent record against internal record, find the differences, explain each one. For a small business a monthly bank rec is the minimum, but high-volume operations — restaurants, e-commerce — often reconcile daily, because the longer a discrepancy sits unfound the harder it is to trace back to its source document.