Bank reconciliation means comparing the bank balance in your books with the balance on your bank statement and explaining every difference. Do it every month: most differences are timing (cheques not yet cleared), bank charges or interest you haven't recorded, or simple mistakes.
KhataIN Business lets you bring in a bank statement, match each line with the entries in your books and finalise the reconciliation for the period.
What is bank reconciliation?
Your books have a bank account — every deposit and payment you recorded. The bank keeps its own record — the bank statement. On any given day the two balances are usually different. Reconciliation is the job of explaining that difference line by line until both sides agree.
Why do it every month?
- Catch mistakes early. A wrong amount found the same month is easy to fix; found at the year end, it is guesswork.
- Spot charges and fraud. Unknown withdrawals, duplicate debits or a bounced cheque show up straight away.
- Close the year cleanly. A reconciled bank account is one of the first things checked when you close the fiscal year.
Why don't the two balances match?
| Reason | Who knows first | What to do |
|---|---|---|
| Cheque you issued, not yet presented | Your books | Nothing — it is timing. Deduct from the bank balance |
| Deposit made on the last day, not yet credited | Your books | Nothing — it is timing. Add to the bank balance |
| Bank charges, SMS fees, cheque book fees | The bank | Record in your books |
| Interest credited by the bank | The bank | Record in your books |
| Customer paid directly into your account | The bank | Record the receipt in your books |
| Wrong amount or duplicate entry | Neither | Correct your books (or ask the bank) |
How to reconcile, step by step
Worked example
At the end of Kartik a shop's books show a bank balance of Rs 2,45,000. The bank statement shows Rs 2,64,700. Ticking the lines, the owner finds:
- a cheque of Rs 30,000 given to a supplier on 28 Kartik that the supplier has not yet deposited;
- Rs 12,000 of cash deposited on 30 Kartik that the bank credits on 1 Mangsir;
- bank charges of Rs 500 not recorded in the books;
- interest of Rs 1,300 credited by the bank, not recorded in the books;
- an electricity payment of Rs 4,500 that was entered in the books as Rs 5,400 by mistake.
Step A — correct the books:
Step B — adjust the bank balance for timing:
Both sides show Rs 2,46,700, so the account is reconciled.
Entries to record in the books:
| Entry | Debit | Credit |
|---|---|---|
| Bank charges | Bank charges expense Rs 500 | Bank Rs 500 |
| Interest | Bank Rs 1,300 | Interest income Rs 1,300 |
| Error correction | Bank Rs 900 | Electricity expense Rs 900 |
The uncleared cheque and the deposit in transit need no entry — they will appear on next month's statement. Check that they do; a cheque still uncleared after several months should be followed up with the supplier.
If your bank statement shows tax deducted on the interest, record that deduction too — ask your accountant which account it belongs in.
Tips that make reconciliation easy
- Use one business bank account and keep personal spending out of it.
- Write the cheque number or reference in every bank entry.
- Reconcile wallets and QR settlement accounts the same way — see recording eSewa, Khalti and Fonepay payments.
- Never "plug" a difference with a balancing entry. Find it.
For the bigger picture, read bookkeeping for small businesses in Nepal.
Frequently asked questions
How often should a small business reconcile its bank account?
At least once a month, as soon as the statement for the month is available. A busy shop with many card and QR receipts may find it easier to reconcile weekly so each session is short.
What is a deposit in transit?
It is money you have deposited and recorded in your books, but which the bank has not yet credited — usually a deposit made late on the last day of the month. It appears on the next statement and needs no extra entry.
What if I cannot find the difference?
Check for amounts entered twice, digits swapped (5,400 instead of 4,500 — such errors are always divisible by 9), entries posted to the wrong bank account and transactions dated in the wrong month. If a bank line still makes no sense, ask the bank for the voucher.
Do I record uncleared cheques again?
No. You already recorded the cheque when you issued it. It is listed on the reconciliation only to explain why the bank balance is higher than your books for now.