Bank Reconciliation Tutorial: Complete Step-by-Step Guide
Learn how to reconcile checking accounts, savings accounts, and credit cards. Includes best practices for monthly close, handling discrepancies, and AI-assisted reconciliation.
What is Bank Reconciliation?
Bank reconciliation is the process of matching your accounting records (general ledger) to your bank statement to ensure accuracy. This verifies that all transactions are recorded correctly and identifies any discrepancies.
Why Reconcile?
- Detect errors: Catch data entry mistakes, duplicate transactions, missing transactions
- Prevent fraud: Identify unauthorized charges or suspicious activity
- Accurate financials: Ensure P&L and Balance Sheet reflect true cash position
- Tax compliance: IRS may request bank reconciliations during audits
- Business decisions: Make informed decisions based on accurate cash flow data
Step-by-Step Reconciliation Process
Gather Bank Statement
Download your bank statement (PDF or CSV) for the period you're reconciling (typically monthly). DynaTax AI can auto-import via Plaid or you can upload manually.
Compare Beginning Balance
Verify the beginning balance on your bank statement matches your general ledger balance from the previous period's reconciliation.
Example: If March statement shows beginning balance of $5,000, your GL balance on March 1 should also be $5,000.
Match Transactions
DynaTax AI automatically matches the majority of transactions using intelligent fuzzy matching:
- Green: Auto-matched with high confidence
- Yellow: Possible match - review recommended
- Red: Unmatched - requires manual action
Handle Discrepancies
Common discrepancies and how to resolve them:
- Outstanding checks: Checks written but not yet cashed - normal, mark as pending
- Deposits in transit: Deposits made but not yet cleared - normal, mark as pending
- Bank fees: Fees not recorded in GL - create journal entry
- NSF (bounced checks): Reverse deposit and record as receivable
- Duplicate transactions: Delete duplicate entry
- Missing transactions: Add missing bank transaction to GL
Verify Ending Balance
After matching all transactions, your GL balance should equal the bank statement ending balance (adjusted for outstanding items):
GL Balance: $12,500
Less: Outstanding checks (-$500)
Add: Deposits in transit (+$300)
Adjusted Balance: $12,300
✓ Matches Bank Statement Ending Balance: $12,300
Mark as Reconciled
Once balanced, mark the period as "Reconciled" in DynaTax. This locks the transactions and prevents accidental changes. Generate a reconciliation report for your records.
AI-Assisted Reconciliation
DynaTax AI accelerates reconciliation with:
- Automatic transaction matching: The majority of transactions matched instantly
- Anomaly detection: Flags unusual amounts, duplicate transactions, or potential errors
- Intelligent suggestions: AI recommends matches for unclear transactions
- One-click reconciliation: Approve all high-confidence matches with single click
Time Savings: Manual reconciliation can take hours per account per month. AI-assisted reconciliation significantly reduces this time, allowing you to focus on analysis rather than data entry.
Frequently Asked Questions
How often should I reconcile?
Monthly is recommended for all businesses. High-transaction businesses (e-commerce, retail) may want to reconcile weekly. Never go more than a quarter without reconciling.
What if I can't find a discrepancy?
Start with the most recent month and work backwards. Check for transposition errors (e.g., $1,234 entered as $1,243). Verify all bank fees, interest, and automated payments are recorded. If still stuck, contact a bookkeeper or CPA.
Can I reconcile credit cards the same way?
Yes! Credit card reconciliation follows the same process. Compare your GL credit card liability account to the credit card statement ending balance. Match transactions and adjust for timing differences.