Bank Reconciliation Guide | How to Match Your Books with Bank Statements

“The bank says we have ¥1,234,567… but our books say ¥1,234,017…”

That ¥550 difference could be a bank fee, an outstanding check, or a serious error.

This guide covers everything about bank reconciliation—from basic concepts to AI-powered automation.

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What is Bank Reconciliation?

Definition

Bank reconciliation is the process of matching your internal cash records with your bank statement to ensure both agree.

Bank Reconciliation: Comparing your books with the bank’s records to identify and explain differences

Why It Matters

Purpose	Benefit
Detect errors	Find data entry mistakes
Catch fraud	Identify unauthorized transactions
Ensure accuracy	Verify cash position
Maintain control	Monitor cash flow

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The Bank Reconciliation Process

Step 1: Gather Documents

You’ll need:

• Bank statement (end of period)
• Cash/bank ledger
• Outstanding check register
• Deposit records

Step 2: Compare Balances

Source	Balance
Bank statement	¥1,234,567
Your books	¥1,234,017
Difference	¥550

Step 3: Identify Differences

Common reasons for differences:

Books have, bank doesn’t:

• Outstanding checks
• Bank errors

Bank has, books don’t:

• Bank fees
• Interest earned
• Unrecorded deposits

Step 4: Make Adjustments

• Record missing bank fees
• Add interest income
• Correct errors

Step 5: Verify Match

After adjustments, both balances should agree.

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Common Reconciling Items

Outstanding Checks

Checks you’ve written but haven’t cleared the bank yet.

Check #	Amount	Date Written	Status
1234	¥50,000	Jan 15	Outstanding
1235	¥30,000	Jan 20	Cleared

Deposits in Transit

Money you’ve deposited but hasn’t appeared on the statement yet.

Bank Fees

Charges the bank deducted that you haven’t recorded:

• Monthly service fees
• Wire transfer fees
• Overdraft charges

Interest Earned

Interest the bank credited that you haven’t recorded.

Errors

Bank Errors:

• Wrong amount posted
• Posted to wrong account

Book Errors:

• Data entry mistakes
• Transposition errors (1234 → 1243)

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Bank Reconciliation Format

Standard Reconciliation Format

Bank Statement Balance                    ¥1,234,567
Add: Deposits in Transit
  - Deposit 1/31                           +¥100,000
                                         ___________
Subtotal                                  ¥1,334,567
Less: Outstanding Checks
  - Check #1234                            -¥50,000
  - Check #1236                            -¥40,000
                                         ___________
Adjusted Bank Balance                     ¥1,244,567
                                         ===========

Book Balance                              ¥1,234,017
Add: Interest Earned                        +¥1,000
Add: Receivable Collection                 +¥10,000
                                         ___________
Subtotal                                  ¥1,245,017
Less: Bank Fees                              -¥450
Less: NSF Check                                -¥0
                                         ___________
Adjusted Book Balance                     ¥1,244,567
                                         ===========

Both adjusted balances should match!

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Common Challenges

Challenge 1: Volume

Transactions/Month	Reconciliation Time
50	1-2 hours
200	4-8 hours
500+	1-2 days

Challenge 2: Notation Variations

Bank descriptions rarely match your records exactly:

Bank Description	Your Records
AMAZON.CO.JP	Amazon Purchase
TFR FROM ABC CO	Transfer from ABC Corp.
ATM 7-ELEVEN	ATM Withdrawal

Challenge 3: Timing Differences

• Month-end cutoff issues
• Deposits after bank closes
• Weekend transactions

Challenge 4: Multiple Accounts

Large companies have dozens of bank accounts across multiple banks.

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Frequency of Reconciliation

Best Practice: Monthly (Minimum)

Frequency	Pros	Cons
Daily	Early error detection	Time-consuming
Weekly	Good balance	Moderate effort
Monthly	Standard practice	Late detection
Quarterly	Low effort	Risk accumulation

When to Reconcile More Frequently

• High transaction volume
• Cash-intensive business
• Recent fraud concerns
• New accounting system

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Automation Options

Method 1: Excel

Manual comparison using spreadsheets.

Pros	Cons
Low cost	Time-consuming
Flexible	Error-prone

Method 2: Accounting Software

Built-in reconciliation features in QuickBooks, freee, etc.

Pros	Cons
Integrated	Rigid matching
Semi-automated	Notation issues remain

Method 3: AI Reconciliation

AI-powered matching that understands variations.

Pros	Cons
Handles variations	Subscription cost
Fast setup	—
90%+ automation	—

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AI-Powered Bank Reconciliation

How Totsugo Helps

1. Import bank statement (CSV/PDF)
2. AI matches transactions automatically
3. Variations absorbed (notation differences)
4. Review only exceptions
5. Approve with Enter key

What Changes

Manual	With AI
Match line by line	AI matches automatically
Hunt for variations	AI handles variations
Hours of work	Minutes of review

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Best Practices

1. Reconcile Promptly

Don’t wait until year-end. Monthly is minimum, weekly is better.

2. Use a Checklist

Ensure nothing is missed:

• All bank statements received
• All deposits traced
• All checks accounted for
• Fees recorded
• Adjustments documented

3. Segregate Duties

Different people should:

• Handle cash
• Record transactions
• Perform reconciliation
• Review reconciliation

4. Document Everything

Keep records of:

• Reconciliation worksheets
• Exception explanations
• Adjustment entries
• Reviewer sign-off

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Summary

What is Bank Reconciliation?

Aspect	Description
Definition	Matching books with bank statement
Frequency	Monthly (minimum)
Goal	Both balances agree
Benefit	Detect errors and fraud

Common Reconciling Items

Type	Examples
Outstanding	Checks not cleared
In Transit	Deposits not posted
Bank Items	Fees, interest
Errors	Typos, transpositions

Automation Path

1. Start with Excel (low volume)
2. Use accounting software (medium volume)
3. Adopt AI for notation variations and scale

Stop the manual matching marathon. Let AI handle the tedious work.

👉 Try PDF reconciliation for free