How bank reconciliation works
Every month, the transactions recorded in the books are lined up against the transactions the bank actually processed. Deposits, withdrawals, and fees are checked one by one. Items that appear in one record but not the other, like a check that has not cleared yet, are noted as reconciling items. This is usually done using the bank feed built into the accounting software, which pulls transactions in automatically each day.
Once every transaction is matched or explained, the adjusted book balance should equal the bank statement balance. Differences that cannot be explained usually point to a data entry error or a missing transaction. A clean reconciliation each month is one of the clearest signs that a company's books can be trusted. Reconciling frequently, rather than waiting until month end, makes it far easier to spot and fix a problem while the details are still fresh.
Example
A shop's books show a cash balance of $12,300 at month end, but the bank statement shows $12,650. Investigation finds a $500 deposit still in transit and a $150 bank fee not yet recorded. Adding the deposit and subtracting the fee brings the book balance to $12,650, matching the bank statement exactly.
Bank reconciliation in QuickBooks Online vs Xero
QuickBooks Online has a dedicated Reconcile tool that lets you check off each bank transaction against the statement and flags the difference as you go. Xero uses its Reconcile screen with Find & Match to pair bank feed lines against invoices, bills, and manual entries. Both keep a reconciliation history for each account. Both platforms also flag duplicate transactions automatically, which helps prevent the same deposit or payment from being recorded twice.
Related terms
How LedgerBPO handles bank reconciliation
We reconcile every bank and card account each month, tracking down outstanding checks, deposits in transit, and unexplained differences before they pile up. A dedicated accountant works directly in your software and flags anything unusual for your review. You get accurate cash balances and a clean audit trail every month. We also investigate any transaction that does not match cleanly instead of leaving it as an unexplained difference.