Bookkeeping Basics · Edmonton
How to do a bank reconciliation, step by step.
A bank reconciliation proves your books and your bank agree. Here's the method, a fully worked example, the entries it produces and the mistakes to avoid.
By the Plum team- Updated Oct 2026
- 9 min read
- Start with the ending balance on your bank statement and the balance in your books for the same date.
- Adjust the bank side for timing items: deposits in transit and outstanding cheques.
- Adjust the book side for things the bank knows that you didn't: fees, interest, errors.
- Both adjusted balances must match to the cent. Then record journal entries for the book-side items.
- Do it every month, and never force a difference through as an "adjustment".
If you want to know how to do a bank reconciliation, here's the whole idea in one line: you compare what your books say is in the bank with what the bank says is in the bank, and you explain every dollar of difference. When the explanation is complete, the difference is zero and you can trust your numbers.
It's the single most important habit in bookkeeping. Your profit, your GST return and your balance sheet are only as good as the transactions underneath them, and the reconciliation is how you prove those transactions are complete and correct. This guide walks through it slowly, with a full example, so you understand what the software is doing for you.
1Why the bank and your books never agree on their own
Your books and your bank record the same events, but at different moments and from different sides. Differences fall into three groups:
- Timing differences. You recorded a deposit on the 31st, but the bank posted it on the 2nd. You wrote a cheque to a supplier, but they haven't cashed it. Nothing is wrong; the bank just hasn't caught up.
- Things the bank knows first. Monthly service fees, interest earned, an NSF customer cheque that bounced, a pre-authorized payment you forgot about.
- Errors. A typo, a duplicate entry, a transaction posted to the wrong bank account, or something deleted by accident.
The method below deals with each group on the correct side of the page. Timing differences adjust the bank's number. Bank-first items and errors adjust your book number, and those are the ones that need journal entries.
If debits and credits are still fuzzy, read our debits and credits cheat sheet first. For your business, the bank account is an asset: money in is a debit, money out is a credit. The bank's statement shows it the other way round, because to the bank your money is a liability it owes you.
2How to do a bank reconciliation in six steps
1. Gather the statement and your ledger
Get the bank statement for the month (a PDF, not just the online balance, because it's a fixed record) and your general ledger or register for the bank account for the same period.
2. Write down the two starting numbers
The statement's ending balance, and your books' balance on the same date. Also confirm last month's reconciled ending balance equals this statement's opening balance. If it doesn't, something from a prior month changed, and you fix that first.
3. Tick off matching items
Go line by line. Every deposit and withdrawal on the statement should match one in your books, same amount, close date. Tick both.
4. List what's left on the bank statement
Anything on the statement but not in your books is a book-side item: fees, interest, bounced payments, or a transaction you missed.
5. List what's left in your books
Anything in your books but not on the statement is usually timing: deposits in transit or outstanding cheques. If an item is months old, it may be an error instead.
6. Adjust both sides and compare
Bank side: statement balance, plus deposits in transit, minus outstanding cheques. Book side: book balance, plus interest and missing deposits, minus fees and missing payments, plus or minus errors. The two adjusted figures must be identical.
3A worked bank reconciliation example
Say you run a small design studio in Edmonton and you're reconciling your business chequing account for October. Here's what you find:
- Bank statement ending balance on October 31: $12,480.00
- Your books' balance on October 31: $12,296.50
- A $850.00 card processor payout you recorded on October 31 lands in the bank on November 2 (deposit in transit).
- Cheque #214 for $1,500.00 to a freelance illustrator hasn't been cashed (outstanding cheque).
- The statement shows an $18.50 monthly account fee you haven't recorded.
- The statement shows $2.00 of interest earned you haven't recorded.
- An e-transfer to a print supplier went out for $940.00, but you entered it as $490.00.
| Bank side | Amount | Book side | Amount |
|---|---|---|---|
| Statement balance | $12,480.00 | Book balance | $12,296.50 |
| Add: deposit in transit | + $850.00 | Less: bank fee | − $18.50 |
| Less: outstanding cheque #214 | − $1,500.00 | Add: interest earned | + $2.00 |
| Less: e-transfer error ($940 − $490) | − $450.00 | ||
| Adjusted bank balance | $11,830.00 | Adjusted book balance | $11,830.00 |
Both sides land on $11,830.00, so you've explained every dollar. Notice the $450 error: it divides evenly by 9 ($450 ÷ 9 = 50). That's the classic sign of two digits swapped, and it's a handy trick when you're hunting for a difference.
The journal entries this reconciliation creates
Only the book-side items get entries. The deposit in transit and the outstanding cheque need nothing; they'll clear on next month's statement.
| Account | Debit | Credit |
|---|---|---|
| Bank service charges (expense) | $18.50 | |
| Business chequing | $18.50 | |
| Business chequing | $2.00 | |
| Interest income | $2.00 | |
| Printing and supplies (expense) | $450.00 | |
| Business chequing | $450.00 | |
| Totals | $470.50 | $470.50 |
In practice you'd fix the $450 by editing the original e-transfer to $940.00 rather than adding a new entry, as long as the period isn't closed. Either way, the effect on the books is the one shown above. If the original amount included GST, edit the GST too, so your input tax credit matches the supplier's invoice.
4How it looks in QuickBooks Online
QuickBooks Online does the arithmetic for you, but the logic is exactly the same as the example above.
- Open the tool. Click the gear icon and choose Reconcile under Tools. Pick the bank account.
- Enter the statement details. Type the ending date and ending balance exactly as they appear on the statement. QuickBooks fills in the beginning balance from your last reconciliation.
- Tick the transactions that appear on the statement. Leave deposits in transit and outstanding cheques unticked.
- Watch the Difference figure. It should reach $0.00. If it doesn't, add the missing fees and interest (you can record them from the bank feed or with + New), fix errors, and keep going.
- Click Finish now only when the difference is zero. QuickBooks marks the ticked items as reconciled (an R in the register) and saves a reconciliation report you can reopen later.
One important point: accepting transactions from the bank feed is not reconciling. The feed categorises transactions, but it can't tell you if a transaction was entered twice, deleted, or posted to the wrong account. Only the reconciliation proves the ending balance. If you're using the feed heavily, set up QuickBooks bank rules carefully, because a bad rule can mis-post dozens of transactions quietly.
5Common bank reconciliation mistakes
- Forcing it. If you finish with a difference, QuickBooks posts the gap to a Reconciliation Discrepancies expense account. That hides the problem instead of solving it. Our guide to reconciliation discrepancies in QuickBooks shows how to track it down.
- Reconciling to the online balance. The live balance moves daily. Reconcile to a statement date and its ending balance.
- Ignoring stale items. A "deposit in transit" from four months ago didn't get lost in the mail. It's probably a duplicate or a deposit recorded in the wrong account.
- Editing reconciled transactions. Changing an amount in a reconciled month breaks the opening balance of every month after it.
- Batch deposit mismatches. A card processor pays you one lump sum for many sales, minus fees. If you recorded each sale separately, group them (in QuickBooks, through Undeposited Funds) so the deposit matches the bank.
- Skipping months. Reconciling twelve months at once in April is far harder than twelve small sessions.
Your monthly reconciliation routine
6Where reconciliation fits in your books
Bank reconciliation is the first step of a proper month-end close. Once every bank and credit card account is reconciled, you can trust the trial balance, your profit and loss, and the GST figures you file. It's also your best protection with CRA: reconciled accounts, with the statements and receipts kept for six years, are what a reviewer expects to see. Your credit cards need the same treatment, which we cover in our credit card reconciliation guide.
If your accounts haven't been reconciled in a while, or you've been finishing with a difference and hoping for the best, that's very fixable. Plum reconciles every account, every month, for businesses across Edmonton, Sherwood Park, St. Albert and Spruce Grove. Book a quick call and we'll tell you how far behind you really are.
7Questions people ask
How often should I do a bank reconciliation?
Monthly, as soon as the statement closes. Busy businesses with lots of transactions sometimes reconcile weekly, but monthly is the minimum if you want reliable numbers and GST returns.
What is the difference between a deposit in transit and an outstanding cheque?
A deposit in transit is money you've recorded but the bank hasn't posted yet. An outstanding cheque is a payment you've recorded that hasn't cleared the bank yet. Both are timing differences, not errors.
Why doesn't my bank balance match QuickBooks?
Usually because of timing (deposits in transit, uncleared cheques), items the bank recorded that you haven't (fees, interest), or errors like duplicates and typos. A reconciliation sorts each difference into one of those groups.
Is the bank feed in QuickBooks the same as reconciling?
No. Matching bank feed transactions categorises them, but reconciling checks the ending balance against your actual statement. You can accept every feed item and still be out if something was duplicated or deleted.
Do I need to keep my bank statements for CRA?
Yes. Bank statements are part of your business records, and CRA generally wants records kept for six years from the end of the last tax year they relate to.
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Book a free 15-min callThis article is general information for Alberta businesses and isn't tax or legal advice. Rules and thresholds change, so confirm your situation with your accountant or CRA.