Bank reconciliation: a step-by-step method and a worked reconciliation statement

Why does the bank balance differ from the balance in your books?

Your books and your bank record the same transactions, but not at the same time. A supplier cheque is recorded on the day it is issued, while the bank only debits it when the supplier pays it in. Conversely, the bank charges fees, credits a transfer or pays an LCN bill at maturity before you have the document. The two balances therefore almost always differ at month-end, without there necessarily being an error.

The bank reconciliation explains this difference line by line and corrects whatever needs correcting in your books. It is a basic internal control that reveals omissions, duplicates and unpaid items; your expert-comptable (chartered accountant) relies on it to validate cash at year-end.

One reading tip: the bank keeps your account the other way round. A credit balance on the statement is money the bank owes you; it matches a debit balance on account 5141 Banks in your books, under the Moroccan chart of accounts (CGNC).

Differences fall into two families. Transactions recorded in your books but not yet by the bank clear by themselves on a later statement and need no entry. Transactions already processed by the bank but not yet in your books must be recorded.

• Cheques issued but not yet cashed by the payee.
• Cheques or bills paid into the bank but not yet credited.
• Fees, commissions and overdraft interest (agios) charged by the bank.
• Incoming transfers not recorded, often with no invoice reference.
• Direct debits: insurance, rent, subscriptions, loan or leasing instalments.
• LCN bills at maturity: a supplier bill debited or a customer bill credited before it was recorded.
• Errors: transposed digits, a transaction entered twice, the wrong account, an unrecorded bounced cheque.

Worked example: a bank reconciliation statement in dirhams

A distribution SME closes its accounts on 31 March. The statement shows a credit balance of 86,412.40 DH; account 5141 in its books shows a debit balance of 73,957.95 DH. The 12,454.45 DH difference must be fully explained. Ticking reveals the following items, set out in the reconciliation statement below.

• Bank side: supplier cheques no. 4512 (12,600.00 DH) and no. 4515 (3,945.60 DH) not yet debited, i.e. 16,545.60 DH to deduct.
• Bank side: customer cheques of 9,870.00 DH paid in on 31 March, not yet credited, to add.
• Book side: a customer transfer of 14,820.00 DH received on 29 March, not recorded, to add.
• Book side: an insurance direct debit of 1,450.00 DH and a supplier LCN of 7,380.00 DH paid at maturity, to deduct.
• Book side: 296.40 DH of fees and commissions and 184.75 DH of overdraft interest, to deduct.
• Book side: cheque no. 4509, debited for 2,470.00 DH, was entered as 2,740.00 DH; 270.00 DH must be added back.
• Reconciled balance, bank side: 86,412.40 − 16,545.60 + 9,870.00 = 79,736.80 DH.
• Reconciled balance, book side: 73,957.95 + 14,820.00 − 1,450.00 − 7,380.00 − 296.40 − 184.75 + 270.00 = 79,736.80 DH. Both balances are equal: the reconciliation balances, and 79,736.80 DH is the true cash position of this account on 31 March.

How do you do a bank reconciliation, step by step?

Golden rule: the two adjusted balances must be exactly equal. If they differ, do not force the match with a balancing line: an item is still unticked or an amount is wrong. A difference divisible by 9 often points to transposed digits, such as 2,740.00 DH entered instead of 2,470.00 DH.

The method takes six steps, with a spreadsheet or with software; only the time spent changes.

• Gather the statement and the bank account ledger from your books, both at the same date.
• Start from the last reconciliation statement: its outstanding items should appear on the new statement.
• Tick each statement line against the matching book entry by amount, date and reference (cheque or LCN number, customer name).
• List the unticked lines on both sides and identify what they are.
• Prepare the reconciliation statement: adjust the statement balance for items pending at the bank, and the book balance for items missing from your books.
• Check that both adjusted balances are equal, then post the adjusting entries.

Which entries should you post after the reconciliation?

Only book-side items lead to an entry, dated in the period. Bank-side items are already in your books and will drop out once they appear on the next statement. Keep an eye on them all the same: a cheque still uncashed after several months deserves a call to the supplier.

The four entries below bring account 5141 back to 79,736.80 DH, the reconciled balance. The choice of expense accounts and the treatment of any VAT the bank charges on its commissions should be validated with your accountant.

• Customer transfer: debit 5141 Banks, credit 3421 Customers, 14,820.00 DH, then match it to the paid invoice.
• Supplier LCN: debit 4411 Suppliers, credit 5141 Banks, 7,380.00 DH.
• Direct debit, fees and interest: debit the relevant expense accounts, credit 5141 Banks, 1,931.15 DH in total.
• Keying error: debit 5141 Banks, credit 4411 Suppliers, 270.00 DH.

How often should you reconcile, and which mistakes should you avoid?

The minimum is monthly, when the statement arrives, account by account. If you handle many cheques and bills, weekly ticking avoids piling up hundreds of lines. The year-end reconciliation is essential: it supports the cash balance on the balance sheet. The most common mistakes are listed below.

• Putting an item on the wrong side: what is missing from your books adjusts the book balance, never the statement balance.
• Posting an entry for an uncashed cheque, which will clear by itself.
• Adding a sundry differences line to force the match instead of finding the error.
• Forgetting last month's outstanding items, or reconciling a statement and books closed at different dates.
• Leaving a never-cashed cheque or a never-credited deposit open for months.

How does SOGESTIO make bank reconciliation easier?

In SOGESTIO, each bank account is set up with its RIB (bank account number). You import the statement of any Moroccan bank in MT940 or CSV format: there is no direct bank connection, as Moroccan banks do not offer an open API, but the import removes any re-keying. Imported lines are then reconciled with the customer and supplier payments already recorded, and each payment generates its entry on the CGNC chart of accounts.

Cheques and bills (LCN) are tracked with their number, bank, due date and status, so you know which ones are still outstanding when you reconcile. The 13-week cash flow forecast then picks up expected receipts and payments. The Bank and treasury module is included in the Pro and Groupe packs, with a 14-day free trial and no card required.