Excite Tax's answer for Utah owners: IRS Publication 583 says to reconcile each month, which means proving the books agree with the bank statement and explaining every difference.
A bank reconciliation puts the business's books beside the bank statement for the same month and explains every difference until the two balances agree. Excite Tax treats it as the check the rest of the books rest on: the IRS says reconciling verifies how much money is in the account and corrects errors in the statement, the checkbook or the books.
Excite Tax's short version: compare each deposit and each cleared check on the statement with the books, list what has not cleared yet, add the bank charges the books are missing, then adjust both balances until they match. The step-by-step list and a worked example with real figures are below.
Monthly. IRS Publication 583 says to reconcile the checking account each month, and Excite Tax recommends the same cadence for every card, loan and payment app on the books. A Utah sales-tax return is due the last day of the month after the filing period, so a monthly reconciliation lands before the return does.
The same way as on paper. The reconcile screen asks for the statement's ending date and ending balance; tick each item that appears on that statement, leave the rest unticked, and finish only when the difference reads zero. Excite Tax's advice is never to let the software post an adjustment to force it there. The rules that apply in any ledger are below.
Partly. Excite Tax's view is that bank feeds and matching rules can automate the typing and most of the matching, but not the final check. IRS Publication 583 requires computerized records to reconcile with the books and the return, so a person still compares the adjusted book balance with the statement each month. The limits are below.
Look for the difference as one transaction amount, then halve it, then see whether it divides evenly by nine. Those three tests find most missing, doubled, reversed and transposed entries. Excite Tax's full troubleshooting list is here.
When you receive your bank statement, make sure the statement, your checkbook, and your books agree.
That one sentence is the whole idea. The bank keeps a record of the account and the business keeps another; a reconciliation proves they describe the same money. Publication 583 says the statement, the checkbook and the books should agree when the statement arrives, and that the checking account should be reconciled each month.
The payoff is practical. Reconciling verifies how much money is actually in the account, makes sure the books reflect every bank charge and the correct balance, and corrects errors in the bank statement, the checkbook and the books. Every report built from the books, from the profit and loss statement to the tax return, inherits whatever a skipped reconciliation missed.
Paper still works. Many banks print a reconciliation worksheet on the back of the statement, and the method is the same whether the books live in a ledger program, a spreadsheet or a checkbook.
Publication 583 illustrates a single-entry system kept by the sole proprietor of a small automobile body shop, and its last exhibit is his bank reconciliation for January. Here it is line by line, with the reason for each line.
Bank reconciliation for January, from IRS Publication 583's recordkeeping example
| Line | Amount | Why it is there |
|---|---|---|
| Closing balance on the bank statement, January 31 | $1,458.12 | Start from the bank's number |
| Add deposits in the checkbook but not on the statement (January 28 and January 31) | $701.33 + $516.08 = $1,217.41 | Deposits in transit: made, not yet credited |
| Subtotal | $2,675.53 | Bank balance plus deposits in transit |
| Subtract outstanding checks numbered 90, 91, 94 and 95 | $66.70 + $9.80 + $150.00 + $300.00 = $526.50 | Written and recorded, not yet cleared |
| Adjusted balance per bank statement | $2,149.03 | What the bank will show once everything clears |
| Balance shown in the checkbook | $2,153.03 | Start from the books |
| Add: January 8 deposit of $600.40 entered as $594.40 | $6.00 | An error in the books, found by comparing deposits |
| Subtotal | $2,159.03 | Checkbook balance after the correction |
| Subtract: bank service charge | $10.00 | On the statement, not yet in the books |
| Adjusted checkbook balance | $2,149.03 | Equals the adjusted bank balance, so the account reconciles |
The two sides started far apart, $2,153.03 in the checkbook against $1,458.12 on the statement, and finished equal. Most of the gap was timing: two late-month deposits and four uncashed checks that fix themselves when they clear. Only two items were real, a mistyped deposit and a service charge nobody had entered.
Not every item needs an entry. The only book adjustment is to the check disbursements journal for the $10 bank service charge; the January 8 deposit of $600.40 was entered correctly in the monthly summary of cash receipts, so only the checkbook figure was wrong. The timing items stay on the list and should clear on February's statement. One that is still outstanding months later is a question to ask, not a line to carry forever.
Includes bank charges you did not enter in your books... or Does not include deposits made after the statement date or checks that did not clear your account before the statement date.
Those are the three normal reasons, and none of them is a mistake: bank charges the books have not picked up, deposits made after the statement date, and checks that had not cleared by it. Card-processor payouts behave the same way: a sale on the last day of the month often reaches the bank in the first days of the next. A reconciliation lists these, explains them, and expects them to clear next month. Anything that does not fit one of these explanations is an error to find.
Before touching the bank side at all, Publication 583 says to confirm the books' own arithmetic: last month's ending balance, plus deposits, minus payments, should equal this month's. If it does not, the error is inside the books, and no amount of comparing with the statement will find it. Messy books with many such months are a cleanup job; the cleanup guide covers the order.
Software changes where the ticks go, not the method. In QuickBooks Online, Xero or any other ledger, the reconcile screen asks for the statement's ending date and ending balance, lists the account's uncleared transactions, and shows a difference that has to reach zero. Excite Tax's guides leave out menu-by-menu clicks because they change with every software release; the rules below do not.
Partly. Bank feeds pull transactions into the books, and matching rules pair each feed line with an invoice, a bill or an earlier entry. That automates the typing and most of the ticking. It does not automate the judgment. A feed can import the same transaction twice, skip days when a bank connection breaks, or match a payment to the wrong bill, and a bad rule keeps misposting until someone notices.
Computerized books are held to the same standard as paper ones. Publication 583 says machine-sensible records must reconcile with the books and the return and give enough detail to identify the underlying source documents, and it points to Revenue Procedure 98-25 for the detail. So the step that closes the month is the same with or without automation: the adjusted book balance equals the ending balance on the bank's own statement. A feed is not a statement.
Excite Tax's view: automate the matching, then have a person compare the ending balance with the statement every month and review anything the rules posted to an uncategorized or suspense account. Can AI do my bookkeeping? goes further into what software can and cannot be trusted with.
Every account with a statement gets the same treatment. A credit card reconciliation compares charges and payments with the card statement. A loan reconciliation checks that the principal balance in the books equals the lender's, which also catches payments posted entirely to the loan with no interest split. A merchant processor or payment app reconciles gross sales, fees, refunds and the payouts that land in the bank. Transfers between the business's own accounts appear once in each account as a transfer, never as income or expense.
Personal spending in the business account makes every one of these slower, because each personal line has to be found and reclassified as an owner draw. The IRS says to open a business checking account and keep it separate from the personal one; keeping them apart is the cheapest reconciliation improvement there is.
A reconciled statement is also evidence. Publication 583 lists account statements among the documents that support expenses, and without a canceled check, a financial account statement showing the amount, the payee and the date the payment posted can prove payment. It proves payment, not purpose: proof of payment alone does not establish a deduction, so the receipt or invoice still matters, and the receipts guide says which ones.
Keep each month's statement and reconciliation report with the year's records. The IRS's general rule is 3 years, with 4 years for employment tax records, and a return built from reconciled books is one whose numbers can be traced back to the bank.
Sales tax collected lands in the same bank account as sales, so a Utah seller's reconciliation is also the check on its sales-tax return. Returns are due the last day of the month after the filing period, and a business with $50,000 or less of annual sales-tax liability files quarterly, monthly above that. Reconcile every month of the period before filing the TC-62S or TC-62M, so the sales figure on the return comes from deposits that have been matched to the bank.
A deposit total that is higher than recorded sales usually means a transfer, a loan or an owner contribution was booked as income, and the sales-tax return would overstate sales if it were filed from those books. A lower one means sales were never recorded. Either way, the reconciliation is where it shows up first. The month-end close checklist puts the reconciliation in order with the rest of the monthly work.
Hand the books over when keeping them costs more hours than the business can spare, or when they stop agreeing with the bank.
Excite Tax keeps these books; the return they feed is reviewed and signed by a licensed CPA at TBD CPA LLC.
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