How to Reconcile Your Bank Statements

Quick Answer

Reconciling your bank statements helps you gain a better understanding of your finances through a review of your deposits, withdrawals and transactions. The process is a healthy financial habit that ensures your records are accurate and could help you avoid fees and detect fraudulent activity.

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Reconciling your bank statement is when you compare your financial records with your monthly bank statement. Checking over all funds deposited into and withdrawn from your bank account helps you get a clearer picture of your finances, which is an important part of budgeting. Here's everything you need to know to reconcile your bank statements.

How Do You Reconcile a Bank Statement?

Bank reconciliation is the process of matching up your own record of financial transactions against your bank statement. The objective is to verify amounts, spot differences and make adjustments as necessary to ensure they correspond. If you discover mistakes or exclusions, determine what led to the discrepancy and correct it to ensure your records are accurate and aligned.

While reconciling your accounts can be tedious, the benefits of doing so can be invaluable. They include:

  • Opportunity to catch mistakes and fraud: Going over your finances with a fine-toothed comb ensures a perfect match between your financial records and your actual transactions and balances. This exercise could help you detect errors and potential fraudulent activities.
  • Additional financial insight: Reconciliation isn't just about matching dollars and cents. The process of reviewing your transactions can shine a light on your spending habits and help you identify areas to improve your money management.
  • Could help you avoid missing payments and late fees: Reconciling your bank account verifies there's nothing missing from your records. It can help you realize if a payment hasn't gone through so you can identify the problem before incurring a late fee. Reconciling also ensures you won't accidentally think you have more money than you do and potentially spend money you don't actually have. In this way, keeping an accurate ledger can help you make sure you don't miss any payments and incur fees.

How Often Should You Reconcile Your Bank Statements?

As a general rule, you should reconcile your savings and checking account with your bank statements at least once every month. It's best to reconcile soon after receiving your statement to spot errors early on and prevent any harm to your account. Addressing errors can also be more challenging the more time passes.

Once you successfully reconcile your account, it's wise to check your accounts regularly to spot fraudulent transactions or discrepancies quickly. Online banking and mobile apps can help you save time by monitoring your accounts in real time. Consider taking an extra step to safeguard your finances by setting up alerts for unusual activity.

Step-by-Step Guide for Reconciling Bank Statements

Before beginning, choose how you want to keep track of your finances. Whether you want to use a check register, spreadsheet, mobile app or another method, it's important to have a system for tracking your income and spending in one place. Choosing the method you're most comfortable with will help make managing your money seem less like a chore and more like a routine.

Ideally, it should only take an hour or less to manually reconcile your account. Follow these steps:

1. Compare Your Current Available Balance

Start by comparing your current balance in your financial records to your bank statement to verify if the balances are the same. If they match, your accounts are already reconciled, though you may still want to review your transactions to better understand your income and spending.

If the balances don't match, continue the reconciliation process to discover any discrepancies.

2. Compare Transactions

Next, go line by line through your bank account, ensuring each deposit, withdrawal and transaction during the month is an exact match. Investigate any difference you find between your records and the bank statement. You need to confirm whether the discrepancy is a human mistake, a bank issue or fraudulent activity.

3. Account for Bank Adjustments

It's not uncommon to discover transactions on your bank account not listed in your personal records. For example, monthly maintenance, overdraft and other bank fees may be unaccounted for. Look for other bank adjustments, such as for interest income earned during the statement period.

Accounting for bank adjustments is quite simple: Add any interest income you've earned from your bank to your financial record and subtract any bank service charges or fees. Typically, these bank-only transactions are minimal, and they are often grouped together on bank statements.

4. Include Pending or Unaccounted Transactions in Your Bank Balance

Make sure pending or unaccounted transactions are added to your bank account balance. Uncashed checks or unprocessed deposits, for instance, may already be listed in your financial records as income. Add them to your bank account balance to prevent discrepancies between your records and the bank's.

5. Investigate Discrepancies

If your balances still don't match up, investigate any discrepancies you find. Perhaps a check you've issued hasn't been cashed yet. Or maybe your bank hasn't processed a check you've already accounted for as income. Maybe the discrepancy is simply an accounting mistake, such as a typo with a transaction amount.

Once you've rooted out any discrepancies, take the necessary steps to resolve them by updating your records or contacting your bank for clarification.

6. Compare Both Balances

Lastly, match the adjusted bank balance from your check register or personal record with your bank's adjusted balance. Since you've gone through your statement and identified discrepancies, your balances should be the same and the bank account reconciliation process should be complete. If the balance differs, repeat steps two through five to identify further differences until your account is fully reconciled.

Stay on Top of Your Finances and Credit

Reconciling your bank statements is a healthy financial habit that helps you maintain accurate records. Once your statement is reconciled, it's a good idea to check your accounts regularly to keep accurate records and spot new discrepancies quickly.

While you're gaining control over your personal finances, it's also wise to stay on top of your credit. Create an Experian account to gain access to your credit score and Experian credit report for free. Maintaining strong credit can open doors and help you qualify for credit that helps you achieve important goals such as owning a home or car.