Guide 01 · Cash
The three-way bank proof
A bank reconciliation is not a hunt. It is a statement that either ties or does not, and if it does not, the difference has a name. This is the format I use on every cash account, every month, in every entity.
The three-way bank proof
Book balance, the reconciling items, and the bank balance — one statement that either ties or it doesn't.
Why "I found it" is the wrong outcome
Most reconciliations in small and mid-sized groups are done by subtraction. Somebody compares two balances, sees a difference, and goes looking until the difference is explained. That works, right up until the month the difference is explained by two errors that happen to offset. Then it ties, and it is wrong.
The fix is to stop treating the reconciliation as a search and start treating it as a proof: a short statement where every line has a documented source, and the result is arithmetic rather than judgement. If the statement does not balance, you have not failed to find something — you have a specific, named gap.
A reconciliation is finished when a second person could re-perform it from your worksheet without asking you a question. Not when the number agrees.
The proof statement
Three balances, two bridges. Everything on the left is sourced from the bank; everything on the right is sourced from the ledger; the reconciling items in the middle have to appear in one and not yet the other, and you must be able to say which.
− Outstanding checks and ACH debits (issued, not yet cleared)
+ Deposits in transit (recorded, not yet credited)
± Bank errors (rare, and documented when claimed)
= Adjusted bank balance
Book balance per general ledger, same date
− Items the bank charged that are not yet booked (fees, returns, NSF)
+ Items the bank credited that are not yet booked (interest, rebates)
= Adjusted book balance
Adjusted bank = Adjusted book. No exceptions, no plug.
The second half is the half that gets skipped. Those un-booked bank items are not reconciling items you carry forward — they are journal entries you owe the ledger. If the same fee shows up as a reconciling item two months in a row, the reconciliation is being used to hide a missing entry.
| Line | Source | Amount |
|---|---|---|
| Balance per bank statement, 31st | Statement, page 1 | 418,204.19 |
| Less outstanding checks (schedule A) | Check register, uncleared | (36,881.40) |
| Add deposits in transit (schedule B) | Batch report, last 2 days | 22,615.00 |
| Adjusted bank balance | 403,937.79 | |
| Balance per general ledger, 31st | Trial balance, acct 1010 | 404,251.79 |
| Less unbooked bank fees | Statement, analysis page | (314.00) |
| Adjusted book balance | 403,937.79 | |
| Difference | Must be zero | 0.00 |
Running it, step by step
Freeze the inputs before you start
Pull the statement as a PDF and the ledger detail as of the same cut-off, and save both to the month's folder. If you reconcile against a live screen, the population moves underneath you and your worksheet is not reproducible next month — or in diligence.
Agree the opening balance first
Last month's adjusted balance is this month's starting point. If it does not agree, stop. There is no value in reconciling the current month on top of a prior-period break: you will spend the day re-finding an old problem and finish with two unreconciled months instead of one.
Match the high-volume population mechanically
Match on amount and date within a tolerance, not on amount alone. Sort both sides and clear the exact matches in bulk; what survives is the real work. For an account with hundreds of transactions a month, matching by eye is how a transposed pair gets cleared against the wrong item.
Treat the survivors as three piles, not one list
Timing (it will clear next month), missing entry (the ledger owes a posting), and error (one side is wrong). Only the first pile is a reconciling item. The other two generate journal entries this month. Most reconciliations that "never quite tie" are carrying piles two and three forward as though they were pile one.
Sign it and lock it
Preparer, reviewer, date, and the two schedules attached. A reconciliation nobody signed is a spreadsheet.
Four things that create a false difference
Transposition
A difference divisible by nine is almost always two digits swapped (5,490 vs 4,590 = 900). Test for it before you start scanning line by line; it takes two seconds and resolves a surprising share of breaks.
Two errors that offset
The reason the proof format matters. When you reconcile by hunting for one number, an offsetting pair looks like success. When every line has a source, it does not.
Voided and reissued checks
The void posts, the reissue posts, and one of them was never removed from the outstanding schedule. Your outstanding list grows a permanent resident. Reconcile the schedule itself, not just its total.
Cut-off drift
A deposit recorded on the 31st and credited on the 1st is in transit. One recorded on the 1st and credited on the 1st is not. Posting dates in the ledger that do not reflect when the batch actually ran will manufacture differences every month.
Stale outstanding items
An outstanding check schedule is a liability list in disguise, and it only tells the truth if somebody ages it. Anything over ninety days is no longer a timing difference — it is a check that will not be presented, and in most states it eventually becomes an unclaimed property matter rather than a reconciliation matter.
Age the outstanding schedule and look at everything past ninety days. Reissue it, void it, or escheat it — but take a position. Carrying it forward silently for two years is the decision that costs the most.
What you keep
- The signed proof worksheet, with both adjusted balances agreeing to zero
- Schedule A: outstanding checks and debits, aged
- Schedule B: deposits in transit, with the batch reports behind them
- The bank statement PDF as pulled, not re-exported later
- The journal entries generated by the reconciliation, numbered and posted in the same period
- A one-line note on anything that required a judgement call, and what you decided
The point of the artifact. Thirteen months from now, a lender, a buyer or your own future self will ask why a number moved. The reconciliation file is the only place that answer lives. Build it for that reader.