Bank reconciliation for service businesses: a practical guide

Bank reconciliation answers one question: do our books agree with the bank? It sounds mechanical, and for a month with twenty transactions it is. For a service business taking hundreds of small payments by transfer, card and cash, it is where bookkeeping quietly falls behind.

This guide explains the method, the three problems that break most reconciliations, and how to keep them from coming back.

The arithmetic

Every reconciliation is the same calculation:

1. Start from the opening balance: the reconciled balance at the end of the last period.
2. Add every deposit and subtract every withdrawal in your books that has cleared the bank.
3. The result is your computed closing balance.
4. Compare it with the closing balance on the bank statement.

The difference should be zero. If it is not, something in your books has not reached the bank yet, something at the bank has not reached your books, or something is wrong.

The whole job is making the difference zero honestly, which means explaining every line rather than forcing a balance.

Problem one: timing

The commonest mistake in a home-made reconciliation is to consider only the transactions dated inside the period. A cheque you wrote on 28 March and the supplier banked on 3 May belongs to March in your books and to May at the bank. If your May reconciliation only looks at May entries, that cheque can never be cleared and the difference never reaches zero.

The rule: when reconciling a period, every uncleared entry dated on or before the period end is a candidate, not only the ones dated inside the period. Old items stay on the list until they clear or are investigated.

Problem two: the amount does not match

A customer pays an invoice of 1,000 by card. The payment gateway keeps its fee and deposits 990. Your books say 1,000; the bank says 990.

Do not edit the payment to 990. The customer paid 1,000 and their invoice is settled. Instead, record the 10 as a bank charge, a separate small entry to an expense account. Now two book entries (the 1,000 receipt and the −10 charge) together explain one bank line of 990, and both the customer's account and your expenses are correct.

The same pattern handles foreign exchange differences, withholding and rounding. An adjustment is not a special mechanism, just another correct entry.

Problem three: duplicates and look-alikes

Imported statement files overlap. You download a statement on the 15th and another at month end, and the first half of the month appears twice. Meanwhile a cleaning company might genuinely receive three payments of exactly 75.00 on the same day.

A sensible import:

• recognises a line it has seen before (by the bank's own reference where there is one, otherwise by date, amount, description and running balance)
• flags suspected duplicates for a person to confirm, rather than silently dropping them
• allows genuinely identical transactions when the statement really does show them

Silently dropping a line is worse than importing it twice. A duplicate shows up as a difference; a dropped line disappears.

Matching faster

Most statement lines have an obvious partner in your books: the same amount, the same direction, a similar date and often a reference. Matching them one by one is slow. Useful shortcuts:

• Rules for recurring items: "monthly account fee → bank charges", "salary batch → payroll clearing".
• Suggestions ranked by evidence: exact amount and reference first, then exact amount and name, then amount within a few days.
• Hard constraints before any scoring: never match money in against money out, or one currency against another, however similar the description.

Finish and lock

When the difference is zero, complete the reconciliation and keep a snapshot of what was cleared. Lock the cleared entries so that nobody edits a transaction the bank has already confirmed. If something must change later, undo the reconciliation deliberately, rather than letting it drift.

How Orbit handles it

Orbit's accounting reconciles each bank account from its own page. You import a CSV or Excel statement, Orbit suggests matches with the reasons it chose them, applies your rules, and flags possible duplicates in their own tab. Uncleared entries dated on or before the period end are included, bank charges can be posted from the reconciliation screen, and a reconciliation can only be completed when the difference is exactly zero. Completed reconciliations are locked and can be printed later exactly as they were.

Orbit imports statements from files; it does not connect live to banks.