A reconciliation that will not balance is the bookkeeper's most frustrating problem, and the owner's most important warning light. It is telling you something in your books is wrong, and until it is resolved you cannot trust the profit and loss. The good news is that most differences have a small set of causes, and there is a systematic way to find them.
What reconciliation actually proves
Reconciliation compares your books to the bank's statement for the same period. When they agree after accounting for timing items, you know every transaction the bank processed is in your books, with the right amount and date. It does not prove that every transaction is categorized correctly, but without it you cannot be sure the books are complete.
Timing differences that are normal
- Outstanding checks written but not yet cleared.
- Deposits in transit recorded in your books but not yet at the bank.
- Payment processor deposits that arrive days after the sale.
- Automatic debits and fees posted by the bank near the end of the period.
The common causes of a real difference
- 1A transaction that cleared the bank but is not in the books, such as bank fees, interest, or a payment you forgot.
- 2A transaction in the books that does not exist at the bank, often a duplicate.
- 3A transposed or mistyped amount. Entering 540 instead of 450 is a classic example.
- 4A wrong date that moves a transaction into a different period.
- 5A previously reconciled transaction that was edited, voided, or deleted afterwards.
- 6A wrong opening balance carried from a prior period.
- 7Deposits recorded as one lump in the books but split by the bank, or the reverse, especially with card processors.
- 8Transfers between accounts recorded in only one account.
A systematic way to find the difference
- 1Confirm the statement's beginning balance equals the ending balance of the last reconciliation. If not, a prior period changed.
- 2Check that the difference is not simply one outstanding item you have not checked off.
- 3Look for a single transaction equal to the difference, on either side.
- 4If the difference is divisible by 9, suspect a transposition, such as digits swapped. This is a well-known bookkeeping heuristic, not a guarantee.
- 5If the difference is exactly twice a transaction amount, suspect a transaction recorded in the wrong direction, a deposit entered as a payment or the reverse.
- 6Compare the statement to the books transaction by transaction for the period, ticking off each match.
- 7Review the audit log for edits to reconciled transactions.
What not to do
- Do not post a plug entry to make the difference disappear. It hides the real error and can distort income or expenses.
- Do not force the reconciliation to balance by changing the statement ending balance.
- Do not delete transactions without understanding why they exist.
- Do not ignore small differences. They are often symptoms of larger problems.
Payment processors and platforms
Deposits from card processors, marketplaces, and payment apps are a leading cause of difficult reconciliations because they arrive net of fees and refunds. Record gross sales, fees, and refunds separately and match the net deposit. See ecommerce accounting services for the mechanics.
When the problem is older than one month
If reconciliations have been skipped for months, start from the last reconciled period and work forward one month at a time, rather than trying to reconcile the whole backlog at once. For severe cases, see what to do when your books are months behind and bookkeeping cleanup services.
Preventing the problem
- Reconcile every account every month, on a set date.
- Set a closing date once a month is finished.
- Use bank feeds, but review them rather than approving everything.
- Record transfers as transfers, not as income and expense.
- Keep personal spending out of business accounts.
Our bookkeeping service includes monthly reconciliation of every account. To discuss your bookkeeping cleanup, tell us which account will not reconcile and for which months.
