Why doesn't my bank reconciliation balance or match the general ledger, and how do I find and fix the difference?

Which two figures actually disagree?

"It doesn't balance" can mean three different disagreements. Each has its own causes and its own search. Write down the two figures and the date before you look at a single transaction.

The cleared balance against the statement. The reconciliation shows a difference that will not reach zero. The fault is inside the reconciliation: the beginning balance, the statement ending balance you typed in, which items are marked cleared, or statement lines the books do not have. QuickBooks Online's troubleshooting steps have you check the ending balance you entered, enter missing transactions, and remove transactions that aren't on your bank statement. The search runs between the statement and the reconciliation.

The reconciled book balance against the ledger. The reconciliation finished at zero, but the bank account in the general ledger shows a different balance at the same date. The statement side is fine and the books disagree with themselves. The search runs through the bank account's own postings, not the statement.

The ledger against the trial balance. The bank account's balance on the ledger report differs from its line on the trial balance. Rerun both reports for the same date, the same account (including any sub-accounts), the same reporting basis (cash or accrual) and the same company file before you touch a transaction. If the two reports still disagree after those checks, the difference is unexplained: raise it with your accountant or the software vendor before changing anything.

What does the difference tell you before you scan anything?

Run these tests first.

• Direction. If the reconciliation's cleared balance is higher than the statement, the books show less money leaving or more arriving than the bank does. If it is lower, the reverse. You now know whether you are looking for something the books overstate or understate; the totals-by-side step below tells you which side.
• One item. If the difference equals a single transaction, that item is probably missing, entered twice, or marked cleared when it should not be.
• Half the difference. An item entered in the wrong direction, such as a deposit entered as a payment, moves the balance by twice its amount. The standard trial-balance technique is to divide the difference by two and look for an item of that size.
• Divisible by 9. If the difference divides evenly by nine, you may have a transposed figure: two digits swapped when the amount was keyed.
• Round or recurring. A difference that matches a monthly service charge, an interest credit or a card-processing fee points to a bank item nobody entered.
• Same as the opening gap. If the beginning balance is off by the same amount, the fault is in an earlier period (see below).

Here is how the tests work on a difference of 270.00, where the cleared balance is higher than the statement:

These tests shortlist causes; they do not prove anything, and a difference is often the net of two or more errors that partly cancel.

In what order should you work the difference down?

Work from the outside in, so every step rules out a whole group of items.

1. The opening position. The beginning balance should equal the ending balance of your last completed reconciliation. If it doesn't, stop here and go to the next section, because nothing in the current period can explain it.
2. The statement figures you entered. Check the ending balance and ending date you typed in against the statement.
3. The cleared items. Compare totals by side before comparing items. Check cleared deposits against the statement's total credits and cleared payments against its total debits. The side that agrees is ruled out in one step. Then go through the side that disagrees item by item, marking each one that matches.
4. The outstanding items. Every item left uncleared should be a real transaction that has not reached the bank yet.
5. The adjustments. Enter the bank's own items, such as fees and interest, and check for adjustments posted in earlier reconciliations. If you find an earlier adjustment, ask whoever posted it what it covered, and make sure your correction does not conflict with it: where the adjustment absorbed the error you are now fixing, reverse it in the same correction, or the difference will reappear in the other direction.

Write down the running difference after every change. If a fix moves the difference without clearing it, your finding was probably right and there is a second item. The changes you find should add up to the amount of the gap. A set of corrections that adds up to the original difference is attributed.

What does a changed opening balance mean, and how do you find what changed?

A beginning balance that no longer equals the last reconciliation's ending balance means something in an already-reconciled period changed after that reconciliation was completed. Stop working in the current period and find the change first.

The usual causes are a reconciled transaction that was edited, deleted, voided, moved or unreconciled, a categorized bank-feed transaction that was undone and sent back to pending, or a transaction dated before the last reconciliation's ending date that was marked reconciled outside a reconciliation. If the account has never been reconciled, the cause is usually the opening balance entry rather than a changed transaction.

Finding the change depends on your software:

• QuickBooks Online. The Reconcile Discrepancy Report lists what changed, how each change affected the balance, and suggested fixes. Two kinds of change do not appear on that report. Deleted and voided transactions: review the audit log, filtered to the account and the period since your last completed reconciliation. Transactions reconciled outside a reconciliation: open the account register and filter by reconcile status to find them.
• QuickBooks Desktop. The Reconciliation Discrepancy report shows transactions changed since your last reconciliation. A Transaction Detail report for the account, dated through the last reconciliation and filtered to entries entered or last modified since then, catches other changes.
• Other systems. Look for the equivalent change or audit report. Using the audit trail in depth is a separate topic.

The date of each changed transaction tells you which completed reconciliation it belonged to; correct it before you continue with the current month.

Which defect leaves which signature?

Match what you see to its likely cause:

Some notes on the rows:

• Bank items. Transactions the bank knows about but the business doesn't must be entered in the books.
• Marked cleared. An item that isn't on your bank statement shouldn't be marked cleared on your reconciliation.
• Duplicates. Removing a duplicate has its own cleanup routine.

What if the statement ties but the ledger does not?

When the ledger is one of the two figures, test for direct postings to the bank account as a separate step. Entries can reach the bank account without passing through a reconciliation: a journal entry that debits or credits the bank account directly, a transfer, or an entry dated back into a period after its reconciliation was completed.

Open the bank account's register. In QuickBooks Online, the register lists every past and current transaction in the account and can be sorted by reconcile status. List every uncleared item dated on or before the statement date. Each one should appear on the reconciliation as a genuine outstanding item. Anything else, especially a journal entry with no matching bank movement, is a direct posting. The bank never saw it, so it will never clear.

For each one, work out which account it should have been posted to and move it there, choosing the period as described below.

How do you tell a legitimate outstanding item from a defect?

An outstanding check has been written and deducted in the books but not yet cashed, so the bank has not removed the money. A deposit in transit has been made and recorded in the books but not yet recorded by the bank.

A genuine outstanding item passes four checks:

1. You have a source document for it, such as the check, the deposit slip or the transfer confirmation.
2. It is dated on or before the statement date.
3. It is not on this statement.
4. When the next statement arrives, it appears there at the same amount. Until then, checks 1 to 3 are the test.

An item that fails one of these is a defect candidate. With no document, suspect a duplicate or an entry made in error. At a different amount, it is mis-stated. If it never appears, question the payee or the bank.

Leave items that pass alone, even when you're under pressure to clear the difference. Unmarking, deleting or editing a genuine outstanding item fixes nothing, and it breaks next month's reconciliation. QuickBooks Online tells you to fix only changes made in error, because some changes are intentional and its suggested fix assumes an error.

How do you correct each defect, and in which period?

Correct the defect where it happened:

• A missing entry. Enter the bank item or the missing transaction.
• A wrong amount, date or account. Fix the original transaction, unless it is linked to a document that has already been paid, such as an invoice a customer has paid, in which case take it to your accountant rather than editing it.
• An item marked cleared by mistake. Unmark it.
• A duplicate. Delete it only if you are absolutely certain it is a duplicate or an error.
• A bank error. Raise it with the bank.

Inside the period you are reconciling. Correct the original transaction.

Inside a previously reconciled period. Editing, deleting, voiding or unreconciling a reconciled transaction changes the ending balance of that reconciliation and the beginning balance of the next. Repairing one period this way silently breaks an older one unless you plan for it. There are two routes:

• Correct the original, then reconcile that period again with the same ending date and balance.
• Leave the original alone and record a reversing or correcting entry dated in the current period.

If you're not certain that a correction to a reconciled period is right, check with your accountant before posting it.

Inside a closed or reported period. Do not alter that period's records. If its figures have been reported to anyone, your accountant decides — before you post anything — whether the statements are restated or the correction goes in the current period. For example, suppose a 400.00 bill payment was entered twice in a closed month. The second copy never cleared. The correction is a reversing entry dated in the current month:

Post the reversal to the same vendor as the duplicate payment and apply it against that payment, so the vendor's balance agrees with the control account. The duplicate and its reversal add up to zero and don't change the balance when combined, so both can be cleared together in the next reconciliation.

Accounting guidance for issued financial statements defines an error to include mathematical mistakes and the oversight or misuse of facts that existed when the statements were prepared. A restatement revises those issued statements to correct the error. Whether to reopen a month you already reconciled or correct it in the current period has its own guide.

What can you do with a difference you cannot attribute?

• Fully attributed. Correct each item and re-perform the tie-out.
• Partly attributed. Treat what remains as a new difference. Run the tests from the start on the remainder alone.
• Nothing attributed. Go back to the first step and confirm the pair, the opening position and the statement figures.

After you allow for reconciling items, the statement and the books should not differ at all. Any difference that remains is researched until you know which bank or book transaction caused it. A book error is corrected. Where the balances will not match exactly, you must at least know the reason for the remaining difference.

What you may not do:

• Mark items cleared that did not clear.
• Post an entry just to reach zero. It buries the error in the account and removes the reason to keep looking.

Do not write off an unexplained difference on your own judgment of its size. If a residue is to be written off at all, that is your accountant's decision, recorded with the amount, the research done, the account it is posted to and who approved it.

Until a remaining difference is explained, keep it on the reconciliation as a documented open item. Do not mark the reconciliation as finished while the difference stands; leave it in progress or save it unfinished. An adjustment does not fix the error. Record:

• The amount
• The period it first appeared
• What you have ruled out
• What is still unexamined

Where someone else can review it, have a second person review and sign off the reconciliation.

How do you confirm the difference is really fixed?

Re-perform the tie-out from the start. The resolution holds when:

• The reconciliation difference is 0.00 with no adjustment entry
• The corrections you made add up to the original difference
• The statement balance, adjusted for outstanding items, equals the book balance
• The bank account on the ledger report, on the statement date, equals the reconciled book balance, and the trial balance shows the same figure
• Next month's beginning balance equals this month's ending balance

The file should let someone else re-perform the work: the completed reconciliation report, a list of each correction (what it was, the amount, why, and the period it was posted in), the write-up of any open remainder, and the reviewer's sign-off.

What does a full trace look like?

The last reconciliation ended at 12,300.00, and this month's beginning balance is 12,300.00, so the opening position is ruled out. The statement shows deposits of 8,400.00, withdrawals of 6,650.00 and an ending balance of 14,050.00, and the ending balance entered in the reconciliation matches. The reconciliation's cleared balance is 14,275.00, so the difference is 225.00, with the books higher.

Tests on the amount. No single item is 225.00, and no item is 112.50. 225.00 divided by 9 is 25, so a transposition is possible.

Totals by side. Cleared deposits are 8,400.00, which agrees with the statement, so the deposit side is ruled out. Cleared payments are 6,425.00 against 6,650.00 on the statement. The fault is on the payment side.

Items on the payment side. Check 1042 cleared the bank at 1,520.00 but was entered as 1,250.00, a 270.00 transposition in the current period. Correcting the original raises cleared payments to 6,695.00. The difference is now 45.00 with the books lower. It moved rather than cleared, so there is a second item.

The second item. Cleared payments now exceed the statement by 45.00, and a 45.00 check written on the 29th is marked cleared but is not on the statement. The copy of the check exists, so it is a genuine outstanding item that was cleared by mistake. Unmarking it brings cleared payments to 6,650.00 and the difference to 0.00.

Attribution. The two corrections, 270.00 and minus 45.00, add up to the original 225.00. The divide-by-nine test pointed at a transposition here only by coincidence — the real transposition was 270.00, masked by the 45.00 item. That is why the tests narrow the search and the item-by-item work settles it.

Tie-out. The outstanding checks are 45.00 and 380.00, and there is a 600.00 deposit in transit. 14,050.00 + 600.00 − 425.00 = 14,225.00. The ledger shows the checking account at 14,225.00 on the statement date, and the trial balance shows the same.