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Bank reconciliation with an IRS worked example
Bank reconciliation explains differences between a statement and the books. Compare individual transactions, identify timing items and correct documented errors before accepting the adjusted balance.
This guide describes common bookkeeping practice, not a legal or regulatory requirement.
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General information, not legal or tax advice.
Separate timing differences from missing entries
Publication 583 recommends reconciling checking accounts monthly and identifies bank charges, deposits after the statement date and uncleared checks as possible differences. Compare the same account and statement period first. Do not assume every difference is an expense that should be posted immediately.
Sources: IRS Pub 583
Work through the statement side of the example
In the IRS example, a $1,458.12 bank balance plus deposits in transit of $701.33 and $516.08 totals $2,675.53. Subtracting outstanding checks totaling $526.50 gives an adjusted bank balance of $2,149.03. These are the publication’s illustration figures, not suggested balances for your account.
Sources: IRS Pub 583
Correct the book side using identified evidence
The example starts the checkbook at $2,153.03, adds a $6 deposit-recording correction and subtracts a $10 bank service charge. The resulting $2,149.03 agrees with the adjusted bank balance. Each adjustment has an explanation; the final agreement is not produced by an arbitrary balancing entry.
Sources: IRS Pub 583
Save the completed reconciliation and unresolved questions
Intuit directs QuickBooks Online users to match until the difference is $0.00 and consult their accountant before accepting an unresolved difference. Retain the statement and reconciliation report together. Track outstanding items into the next review so an old check or deposit does not remain unexplained indefinitely.
Sources: separate timing differences from missing entries
Get help resolving bank differences
Tidwell helps reconcile the books and organize supporting schedules for your business decisions. We work with your CPA on tax questions and the financial records they need.