What bank reconciliation is
You have two records of the same bank account. One is the bank statement, kept by the bank. The other is the bank account in your books, kept by you or your accounting software. Reconciliation is the check that these two records agree, and an explanation for any difference.
In plain words: bank reconciliationComparing your records with the bank statement, line by line, until you can explain every difference. When nothing is left unexplained, the account is reconciled.
Why do it? Because each record can be wrong in a different way. The bank might have charged a fee you did not know about. A customer might have paid you without telling you. You might have typed RM 1,050.00 instead of RM 1,500.00. A supplier might have been paid twice. Each of these is easy to fix when it is found early, and very expensive when it is found a year later.
Reconciliation is also your protection against fraud and error. If someone withdraws money you did not approve, the statement shows it and your books do not. The gap is the clue.
It is not about distrusting the bank. Banks are usually accurate. It is about making sure that your books are an accurate picture of reality, since the profit, tax and cash figures all depend on them.
Why the two records differ
Most differences fall into three groups. Knowing them makes the job much easier.
1. Timing differences
The event is real and recorded on both sides, but on different dates. You write a cheque to a supplier on the 29th and record it that day, yet the supplier banks it on the 3rd of next month. At month end your books show the payment and the statement does not. The same happens with a cash deposit you made late on the last day, which the bank adds the next working day. These fix themselves, and they are only listed on the reconciliation.
2. Things you have not recorded yet
The bank knows about them but your books do not. Bank fees, interest, a direct debit for insurance, a customer paying you by transfer. These need a new entry in your books.
3. Mistakes
A wrong amount, a duplicate entry, a transaction recorded in the wrong account, or one the bank got wrong. These need correcting on whichever side has the error.
In plain words: outstanding itemSomething you have recorded that has not yet reached the bank statement, such as a cheque not yet cashed. It is a timing difference, not an error.
A worked example with real numbers
At the end of the month, your books show RM 12,450.00 in the bank account. Your bank statement closes at RM 13,070.00. The difference is RM 620.00. Let us find out why.
Going through the statement against your records, you find the following.
- A supplier payment of RM 1,500.00 that you recorded, but the supplier has not cashed it yet (outstanding).
- A cash takings deposit of RM 500.00 you made on the last evening, recorded in your books but not yet on the statement (in transit).
- A bank fee of RM 30.00 on the statement that you have not recorded.
- An insurance direct debit of RM 350.00 on the statement that you have not recorded.
| Start from the bank statement | RM |
| Statement closing balance | RM 13,070.00 |
| Add: deposit made but not yet on the statement | RM 500.00 |
| Less: payment recorded but not yet cashed | -RM 1,500.00 |
| Adjusted bank balance | RM 12,070.00 |
| Start from your books | RM |
| Balance in your books | RM 12,450.00 |
| Less: bank fee not yet recorded | -RM 30.00 |
| Less: insurance direct debit not yet recorded | -RM 350.00 |
| Adjusted books balance | RM 12,070.00 |
Both sides arrive at RM 12,070.00. They agree, so the account is reconciled. The two outstanding items need no action. The fee and the direct debit need entries in your books, after which your books show RM 12,070.00 too.
The steps, by hand
Whether you use a spreadsheet or software, the order is the same.
- Pick the period and the account. Usually one calendar month for one bank account.
- Check the opening balance. The statement's starting balance should equal last month's reconciled balance. If it does not, an old problem is still hiding.
- Go through the statement line by line. Tick each line that has a matching entry in your books, with the same amount and a similar date.
- List what is left over. Entries in your books that were not on the statement are probably timing items. Lines on the statement that are not in your books need investigation.
- Record what is missing. Add the bank fees, interest and any payments or receipts you had not recorded.
- Fix mistakes. Correct wrong amounts, remove duplicates, move entries to the right account.
- Check the result. After adjusting for timing items, both balances must agree. If they do not, keep looking.
When you hit a stubborn difference, look first for the exact amount of the gap, then for half of it (a transposed entry often looks like a half), then for a number with digits swapped, such as RM 540.00 recorded as RM 450.00. The difference between those two is RM 90.00, always a multiple of nine, a clue for transposed digits.
Done every month, the whole check usually takes a few minutes. Left for a year, it can take days.
What to do with the lines that will not match
Some lines will puzzle you. Here is a short guide to common ones.
- A deposit you do not recognise. Check invoices for the same amount. It may be a customer paying without a reference. Ask before assuming. Until you know, record it as money received that needs to be allocated, not as sales.
- One payment covering several invoices. A customer pays RM 3,800.00 for two invoices of RM 1,800.00 and RM 2,000.00. Match the single bank line to both.
- Part payments. A customer pays RM 1,000.00 of a RM 2,400.00 invoice. Match the part and leave the balance of RM 1,400.00 open.
- A personal expense paid from the business account. Record it as the owner's drawings, not as a business expense.
- A transfer between your own accounts. It is not income or an expense. It moves money from one account to another and appears on both statements.
- A payment to a supplier you cannot identify. Ask the bank for the payee details, and check receipts, before booking it anywhere.
The golden rule: never force the numbers to agree. Accountants sometimes call a forced figure a "plug". It makes the screen look right while hiding the real problem. If you cannot explain a difference, leave it visible until you can.
How often to reconcile
The honest answer: as often as you can bear it, and at least monthly.
- Monthly is the minimum. It matches the cycle of statements and keeps your reports reliable. Most accountants expect it before preparing tax work or yearly accounts.
- Weekly is easier. The statement is short, you still remember what each line was, and problems are caught while they are fresh.
- Daily is a sensible habit for busy shops. Cash takings, card settlements and refunds are best checked against the bank while the details are in your head.
The size of the job depends far more on how long you wait than on how many transactions there are. A month with 80 lines takes minutes if the previous month was clean. A year of unreconciled lines with a single hidden error can take a whole weekend to untangle.
Another reason to keep up: a locked period. Once an accountant has closed a month, changing it needs a formal correction. Reconciling before that point means the closing figures are the right ones.
A tipChoose a fixed day each month, such as the fifth, put it in your calendar, and treat it like paying rent. Ten minutes, on time, every time.
Common mistakes
- Forcing it to balance. Adding a made-up adjustment to close the gap hides errors that will return later.
- Matching by amount only. Two RM 500.00 payments on different days can be swapped by mistake. Check date and reference too.
- Reconciling the wrong month. Always confirm the statement dates and the opening balance first.
- Ignoring small differences. RM 3.50 might be a bank charge, or it might be the tip of a larger problem. Find out.
- Skipping the bank fees. They are small, they repeat every month, and together they are real costs that belong in your profit and loss.
- Treating a reconciled account as proof of correct categories. Reconciliation proves the cash is right. It does not prove that Rent was not coded as Supplies.
How Faas does this for you
Reconciliation is the part of accounting that owners avoid most, so Faas does the heavy lifting and asks you only for the judgement calls.
- Upload your statement as a PDF, CSV or image. Faas reads each line.
- Faas matches lines to your records on amount, date and reference, and gives each match a confidence score. Strong matches are ticked for you.
- You review the unclear ones. In Easy Mode it reads "3 things to review", and you tap Yes or No. In Full Mode the accountant sees every line, suggestion and score.
- Bank rules remember your choices. If you tell Faas that a certain monthly debit is Insurance, it suggests the same next time.
When a customer pays through the Faas pay link, the invoice updates and the payment is matched to the bank line automatically. Bank feeds can also connect as an integration.
See the full story on the bank reconciliation page, or read how the pay link keeps payments tidy.
General education onlyThis guide explains how things usually work, using invented numbers. It is not legal, tax or accounting advice. Your accountant can tell you what applies to your business.
Let the books look after themselves.
Faas does the recording for you, in words you already use. Start with Easy Mode and bring your accountant in when you are ready.