Bank reconciliation
Checking that your records and your bank statement agree, line by line and balance by balance.
A bank reconciliation is a cross-check that the transactions in your records match the bank statement for the same period, and that the closing balances agree once items still in transit are allowed for. Every difference is explained — a missing fee, a duplicate, a transfer between your own accounts — rather than left in the books.
business.gov.au defines it as a cross-check that the amounts in your cash book match the bank statements. The proof is one line: statement closing balance + deposits in transit − payments not yet processed = your records’ closing balance. Reconcile each account monthly, and always before a BAS or VAT return and at the end of the financial year.
Worked example
The statement closes October at $18,420.55. Card takings of $1,250.00 are in transit and a $680.00 payment has not yet left: $18,420.55 + $1,250.00 − $680.00 = $18,990.55. The records show $19,005.55 until the $15.00 account fee is added, and then the two agree.
Common mistake
Posting an unexplained difference to a suspense or sundry account so the figures agree. The gap is still there, only moved, and it usually turns out to be a duplicate or a missing line that changes the GST or the profit.
Grounded in business.gov.au — Key financial terms guidance. Figures last checked . General information, not tax advice.
Related terms
Balance sheet
What a business owns and owes on one date, and the equity left for its owner.
Aged receivables
What customers owe you, sorted by how long each amount is past due.
BAS (Business Activity Statement)
The form GST-registered businesses use to report GST and PAYG.
ABN (Australian Business Number)
The 11-digit number that identifies your business.
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Questions about this term
Bank reconciliation: common questions
- What is the formula for a bank reconciliation?
- Take the bank statement’s closing balance, add deposits you have recorded that the bank has not shown yet, and subtract payments you have recorded that it has not processed yet. The result should equal the closing balance in your own records for the same date.
- Why does a difference divisible by 9 matter in a bank reconciliation?
- Because swapping two digits always creates a difference that divides evenly by 9: typing $540 as $450 leaves $90 unaccounted for. When the gap divides by 9, look for a transposed amount before anything else.
- Is reconciling the same as checking my balance in the banking app?
- A balance check tells you the bank and your records end at the same figure today; a reconciliation proves every line between two dates matches. Two errors can cancel each other out in the balance, and only the line-by-line check finds them.
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