A checkbook reconciliation is a simple process that starts with your checkbook and marks transactions as "cleared" when they have been posted to your bank account. This allows you to see what payments are still outstanding and have not been posted by the recipient, as well as deposits that are still in transit to the bank. This process also makes bank transactions and other electronic transactions that you may not have posted to your checkbook to stand out and prompt you to record them.
A checkbook reconciliation can be broken into four segments, cleared checks and payments, cleared deposits, outstanding checks, and deposits in transit. With these four categorized groups of transactions we can calculate any unreconciled amount and accurately complete the checkbook reconciliation. All accounting systems should offer a checkbook reconciliation module that will assist in categorizing your transactions by marking them cleared while calculating any unreconciled difference.
So what is the unreconciled difference? The unreconciled difference is the variance between your calculated bank statement ending balance versus what you tell the system you bank statement ending balance actually is. Below you will see the calculation for a checkbook reconciliation as shown in a reconciliation report. Follow the four categorized groups discussed above and you will see the calculation for your unreconciled amount as well as the calculation back to your current checkbook balance. In order to successfully reconcile your unreconciled amount should equal zero. If your amount is anything other than zero, you still have marked uncleared items that have cleared, or visa versa, or unrecorded items that need to be posted into the checkbook.
You can simply stay reconciled by entering your bank statements ending balance and marking the appropriate transactions as cleared. The system will automatically calculate any unreconciled difference and clearly indicate any variance.
For a great article on why you should reconcile, be sure to check out our blog post Top Five Reasons Why You Should Reconcile Your Checkbook!