A bank reconciliation proves that the cash in your books matches the cash in the bank, and explains every difference. Every business does one at month-end. The real choice is whether the matching work happens in one sitting after the statement arrives, or a little every day.
This article covers how a reconciliation works, what is different about it for a distributor, and the trade-offs between the two rhythms.
How a reconciliation works
You start with two balances that rarely agree on the day: the ending balance on the bank statement and the balance of the cash account in your general ledger. The differences fall into a few groups.
- Deposits in transit. Money you recorded but the bank had not credited by the statement date.
- Outstanding checks. Checks you wrote and recorded that have not cleared the bank yet.
- Bank charges and interest. Fees and interest the bank recorded that your books do not have yet.
- Returned items. A customer check returned for insufficient funds, or a returned ACH payment, that the bank reversed and your books still show as received.
- Errors. A transposed amount, a payment entered twice, or a deposit posted to the wrong account, on either side.
You adjust each side for the items it is missing. When both adjusted balances agree, the account is reconciled.
A worked example
The figures below are an example with round numbers.
| Bank side | Amount | Book side | Amount |
|---|---|---|---|
| Statement ending balance | $50,000 | Cash account balance | $47,200 |
| Add deposit in transit | $5,000 | Less bank fee not yet recorded | $50 |
| Less outstanding checks | $8,000 | Less returned customer check | $150 |
| Adjusted bank balance | $47,000 | Adjusted book balance | $47,000 |
The book-side items need journal entries: the fee goes to bank charges, and the returned check goes back onto the customer's balance. The bank-side items need no entry; they clear on their own next month. If one still has not cleared after a few weeks, find out why.
What makes it harder for a distributor
- Many small deposits. Customer checks, ACH payments and card settlements arrive every day, often several per customer per week.
- One deposit, many invoices. A single check or transfer can pay several invoices, and the bank shows only the total.
- Card settlements. Card batches often settle net of processing fees. Record the full payment against the customer and the fee as an expense, or the deposit will never match.
- Thin remittance detail. An ACH credit may arrive with only a company name, which may not match the customer name in your system.
- Returns after the fact. An ACH payment can be returned days after it appeared to succeed. The reversal needs to reach both the cash account and the customer's balance.
Every one of these also affects receivables. A deposit that is not matched to a customer is cash that has not been applied, and the customer looks late on the AR aging when they have paid.
Month-end only
In this rhythm, the bookkeeper or controller waits for the statement and matches the whole month in one pass.
What works: it is simple to schedule, it needs no daily discipline, and for an account with few transactions it may be all you need.
What does not: problems surface weeks after they happened. An unexpected debit, a returned payment or a deposit that went to the wrong customer sits unnoticed until the statement arrives. Meanwhile receivables are wrong, collection calls go to customers who have paid, and the month-end close waits on the matching work.
Daily matching
In this rhythm, someone brings in the previous day's bank transactions every morning, through a bank feed or a daily download from online banking, and matches them while the details are fresh.
- Match each deposit to the payments recorded in your books, and apply any customer payment that has not been applied yet.
- Match each withdrawal to the check, ACH payment or transfer that caused it.
- Code recurring items, such as bank fees, loan payments and card processing fees, using rules so they do not need a person each time.
- Put everything that does not match into a short exception list and resolve it that day.
Daily matching does not replace the month-end reconciliation. You still reconcile to the statement's ending balance, list the outstanding items and sign off. What changes is that by then almost every line is already matched, so the month-end step is a review rather than a project.
Side by side
| Month-end only | Daily matching | |
|---|---|---|
| When problems surface | After the statement arrives | The next business day |
| Receivables accuracy | Unapplied cash builds up during the month | Payments applied as they arrive |
| Effort | One large block at month-end | A short task each day |
| Month-end close | Waits on matching | Review and sign-off |
| Best fit | Accounts with few transactions | Operating and deposit accounts with daily activity |
Controls worth adding either way
- Separate duties. The person who reconciles should not be the only person who can write checks or release payments.
- Review unexpected debits quickly. Business account agreements often set short deadlines for reporting unauthorized transactions. Read yours, and ask your bank which fraud controls it offers for checks and ACH debits.
- Reconcile every account. Include payroll, merchant deposit and credit card accounts, not just the main operating account.
- Keep the evidence. Save the statement, the reconciliation and the list of outstanding items for each month, signed off by someone other than the preparer where you can.
A reconciliation that is done on time also shortens the close. Closing the books covers the rest of the close checklist.
How APFoodz handles it
APFoodz imports your bank statements and matches them for you, with a review step. Incoming payments are matched to customers and invoices through cash application.