Matching the books to the bank statement, monthly, until every difference is explained.
Bank reconciliation is the monthly ritual of matching the books against the bank statement, transaction by transaction, until every difference is explained. It's how books get proven rather than assumed.
Reconciliation catches what nothing else does: missed bank fees, duplicate entries, transposed amounts, deposits that never arrived, and sometimes fraud. Differences come in two honest kinds — timing (a check written but not yet cleared) and omissions (a fee the books missed) — and one dishonest kind: forcing an adjustment entry to make it balance, which buries whatever the difference was trying to tell you.
The books say $12,480; the bank says $12,545. Reconciling reveals a $35 bank fee not yet recorded and a $100 check still outstanding: 12,480 + 35 = 12,515 in the books, 12,545 − 100 = 12,445… still off by $70 — keep digging. That discipline is the whole point.
Undeposited Funds · General Ledger · Trial Balance — or browse the full plain-English glossary.
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