Bank reconciliation

Purpose

To ensure month-end and ongoing cash balances are complete, accurate, and audit-ready by:

• Matching bank-statement transactions to internal ledger entries
• Identifying timing differences and missing postings
• Producing clear reconciliation summaries and exception lists
• Preparing review-ready journal entries where corrections are required

The workflow supports both period-end close and ongoing cash monitoring.

Data sources

1. Bank balance (current period): Opening and closing balances reported by the bank for the reconciliation period, used as control totals.
2. Bank statement (current period): Detailed transaction-level activity exported from the bank for the reconciliation month.
3. Ledger data (current period): Cash-account journal entries recorded in the internal accounting system for the same period.
4. Unmatched items from prior periods: Bank or ledger transactions not previously reconciled, carried forward to ensure no items are lost due to timing differences.

Key processing steps

1. Data normalization

Standardizes bank and ledger datasets to ensure reliable matching across key fields such as amount, date, reference, and counterparty.

• Bank data normalization
  • Parse and standardize date formats
  • Standardize transaction description text
  • Categorize transaction type (e.g., deposit, withdrawal, fee)
  • Ensure consistent debit/credit signage (+ / –)
• Ledger data normalization
  • Normalize GL codes and references
  • Extract customer, vendor, and payment IDs
  • Standardize debit/credit representation
  • Remove reversed or voided entries

2. Prepare reconciliation datasets

Two reconciliation sets are created to ensure full coverage:

• Bank reconciliation set: Current-period bank transactions plus unmatched bank items from prior periods
• Ledger reconciliation set: Current-period ledger entries plus unmatched ledger items from prior periods

Unmatched items persist until resolved, ensuring continuity across reconciliation cycles.

3. Transaction matching

Applies flexible matching rules to identify matches between bank and ledger transactions:

1. Reference match - Payment ID, invoice ID, batch ID, or other unique reference.
2. Exact amount + exact date - Direct one-to-one matches.
3. Exact amount + date within tolerance - Accounts for posting delays.
4. Customer/vendor name similarity - Fuzzy matching on counterparties where identifiers differ.
5. Grouped matching - E.g., a single bank batch deposit matched to multiple ledger receipts.

4. Reconciliation results and adjustments

Results are organized into clear operational categories:

• Matched transactions: Bank and ledger entries reconciled; summarized by debit and credit
• Unmatched bank transactions: Items present on the bank statement but missing from the ledger, split by debit and credit
• Unmatched ledger transactions: Items recorded in the ledger but not yet reflected on the bank statement
• Reconciliation balances: Opening bank balance, adjusted for outstanding debits and credits, reconciled to the ledger balance

Where required, corrective journal entries are prepared for review and posting.

Outputs

1. Reconciliation balance summary: Opening, matched, unmatched, and closing cash balances with clear variance explanations.
2. Matched transaction list: Fully reconciled bank ↔ ledger pairs with references and amounts.
3. Unmatched items lists: Outstanding bank-side and ledger-side transactions for follow-up.
4. Draft journal entries: Review-ready correcting entries to be approved and posted in the accounting system.