Bank Reconciliation for Small Business: Step by Step
A step-by-step bank reconciliation for small businesses in India: the five usual differences, a worked bank reconciliation statement, and how often to do it.
Short answer: a bank reconciliation matches every line on your bank statement with an entry in your books for the same period, explains the lines that differ, and corrects your books for anything the bank recorded that you did not. When it is done, your book balance and your bank balance agree after allowing for items still in transit. Do it every month, within a week of the month's end.
KEY TAKEAWAYS
- Most differences are timing: cheques not yet presented and deposits not yet credited.
- Bank charges, interest and direct customer payments are entries your books are missing.
- Correct the books for missing entries; only timing items stay on the reconciliation.
- Monthly is the minimum. A reconciliation six months late hides errors and fraud.
Why the two balances differ
Your books and the bank record the same money at different moments. Five causes explain almost every difference:
| Item | Example | Fix |
|---|---|---|
| Cheque issued, not yet presented | You paid a supplier by cheque on 30 October | Timing; it clears next month |
| Deposit not yet credited | Cash deposited late on 31 October | Timing; it appears next month |
| Bank charges | SMS, NEFT or cheque book fees | Record them in your books |
| Interest credited | Quarterly savings or sweep interest | Record it in your books |
| Direct receipts or payments | A customer paid by UPI or NEFT and nobody recorded it | Record and match to the invoice |
Anything left over after these five is an error: a duplicate entry, a wrong amount, a payment recorded in the wrong bank account. Find it before you close the month.
The steps
- Get the statement for the full month, as a CSV or Excel file if your bank offers one.
- Tick matching lines. Same amount, close date, and a matching reference such as an invoice number or UTR.
- List what is on the statement but not in your books: charges, interest, direct receipts. Record each one.
- List what is in your books but not on the statement: cheques not presented, deposits not credited. These are your timing items.
- Prepare the statement (below) and check it balances to the rupee.
- Follow up old items. A cheque unpresented for more than a couple of months needs a call to the payee.
A worked bank reconciliation statement
On 31 October your books show ₹2,40,000 in the current account. The bank statement shows ₹2,71,500. You find: a ₹45,000 cheque to a supplier not yet presented; a ₹20,000 deposit made on 31 October not yet credited; bank charges of ₹500 and interest of ₹1,000 not in your books; and a customer's ₹6,000 NEFT payment nobody recorded.
First, correct the books
| Amount (₹) | |
|---|---|
| Balance as per books | 2,40,000 |
| Add: interest credited | 1,000 |
| Add: customer payment received directly | 6,000 |
| Less: bank charges | (500) |
| Corrected book balance | 2,46,500 |
Then, reconcile to the bank
| Amount (₹) | |
|---|---|
| Balance as per bank statement | 2,71,500 |
| Less: cheque issued, not yet presented | (45,000) |
| Add: deposit not yet credited | 20,000 |
| Adjusted bank balance | 2,46,500 |
The two agree, so the month is reconciled. Only the cheque and the deposit carry forward to November's reconciliation.
Habits that make it quick
- Record payments with a reference. An invoice number or UTR on every receipt turns matching into a lookup.
- One bank account per purpose where you can: one for collections, one for payments.
- Reconcile before you file GST. A receipt you missed may mean an invoice is shown as unpaid, and a charge you missed may carry GST you can claim.
- Keep the statement with the reconciliation, so your CA can check it without asking.
How Grovia handles it
Grovia's bank reconciliation takes your bank statement as a CSV, XLS or XLSX file, suggests matches automatically against the payments you have recorded (invoice payments, receipts, purchase and vendor payments, and expenses), and lets you match the rest by hand, mark lines reconciled and add a note. Unmatched lines stay visible until they are explained.
Grovia runs bank reconciliation, invoices and payments alongside leads, quotations, GST invoices, payments and your team in one place. Start a free 14-day trial (no card needed).
Checked on 3 November 2026. Tax rules change; confirm anything that affects a return with your CA.
Frequently Asked Questions
What is a bank reconciliation statement?
A statement that explains the difference between the balance in your books and the balance on your bank statement on the same date, item by item, so that the two agree.
How often should a small business reconcile its bank account?
At least monthly, within a week of the month's end. Businesses with many daily transactions often reconcile weekly.
What are the most common reasons for differences?
Cheques issued but not yet presented, deposits not yet credited, bank charges, interest, and customer payments received directly into the bank that were never recorded.
Should bank charges be recorded in the books?
Yes. Bank charges and interest appear only on the statement until you record them, so they are corrected in the books, not carried on the reconciliation.
What if the reconciliation still does not balance?
Look for a duplicate entry, a transposed amount, a payment recorded against the wrong bank account, or an entry dated in the wrong month.
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