Business bank reconciliation: prove the ledger matches the bank

Bank reconciliation compares the company's accounting records with the bank's own transaction record. The purpose is not simply to make two balances equal. It is to explain every difference and confirm that cash, fees, receipts and payments have all been recorded once and in the correct period.

Choose one bank-statement cut-off and reconcile to that exact point

Use the statement closing balance for a defined date and compare it with the accounting ledger at the same date. Do not reconcile a bank balance from 31 March against a ledger that already includes 1 April payments. Clear cut-off is the foundation of the process.

Download the bank statement or secure transaction report and preserve it with the reconciliation. GOV.UK lists bank statements among relevant company accounting documents, while self-employed record-keeping guidance also identifies bank statements and bank slips as supporting evidence. The reconciliation should therefore link the bookkeeping record back to original bank evidence.

Separate legitimate timing differences from accounting mistakes

Some differences are normal. A cheque can be recorded in the ledger before it clears the bank. A card settlement can be in transit. A bank fee can appear after the accounting entry was prepared. List each timing item separately rather than forcing the ledger to the bank balance with a generic adjustment.

For example, if the ledger says £82,000 but the bank statement shows £76,000, an outstanding £8,000 cheque and a £2,000 card settlement in transit can explain the gap. Once those items clear, the difference should disappear. If it does not, the reconciliation has identified a real error that needs investigation.

Use reconciliation to find omitted, duplicated and wrongly coded transactions

Match bank lines to ledger entries systematically. Look for bank charges not recorded, customer receipts missing from the ledger, duplicate imports from accounting feeds and payments posted twice. Automated feeds reduce data entry but can still duplicate or omit transactions when connections are re-authorised.

Investigate unexplained items promptly. A £6,000 payment nobody recognises can be fraud, a legitimate supplier payment coded incorrectly or a transfer to another company account. Month-end is the point to resolve it, not to leave it in a suspense category indefinitely.

Transfers between company accounts should clear on both sides

If the company moves £50,000 from current account to savings, the transaction is not income in one account and expense in the other. Record it as an internal transfer and match both bank entries. The same applies to movements between currency accounts, reserve accounts or branches.

Unmatched transfers can distort cash reporting. One account may show the money leaving on Friday while another bank posts the receipt on Monday. Keep the amount in a transfer-clearing category until both sides are visible. That preserves the total cash position without inventing income or expense during the timing gap.

Reconcile card, marketplace and payment-provider payouts from gross activity to net cash

A single bank credit can represent hundreds of customer payments. Reconciliation should connect the net settlement to gross sales, refunds, chargebacks, processing fees and reserves. Do not book the net bank credit as revenue simply because that is the amount that arrived.

Suppose the card processor pays £47,200 into the bank against £50,000 of gross sales, £1,800 of refunds and £1,000 of fees. The ledger should explain all four numbers. This makes fees visible and prevents margin from being understated or overstated by the settlement method.

Have someone review the reconciliation and old outstanding items

Where staff numbers allow it, the person reviewing the reconciliation should not be the only person who can create and approve bank payments. Review outstanding cheques, old deposits in transit, unexplained cash and suspense items. A timing difference that remains for three months is probably no longer just timing.

Sign off the reconciliation with the preparer, reviewer and date. Keep it with the statement and supporting schedule. HMRC and Companies House rules require companies to retain accounting records, and a documented reconciliation helps demonstrate that the bank evidence and accounting ledger have been actively checked rather than merely stored.

Use a consistent exception threshold. A £2 unexplained difference may not justify the same escalation as £20,000, but unexplained items should not be written off automatically. Small repeated differences can reveal feed problems, card rounding issues or weak cash controls. Set a rule for when an item must be investigated and when it can be cleared with documented approval.

Reconciliation is also a useful control before management reporting. Cash shown in the board pack should come from reconciled balances, not from a dashboard snapshot that includes duplicated feed entries or excludes settlement accounts. Once the bank is reconciled, cash-flow forecasts and treasury decisions start from a much more reliable base.