Bank reconciliation sounds like an accounting term that only CPAs need to understand. In practice, it's one of the most practical financial health checks you can do for your business — and any business owner can learn to do it in under an hour once they understand the concept.
This guide explains what bank reconciliation is, why your business needs it, and walks through a complete example using a BDO account owned by Juana Dela Cruz, who runs a catering business in Manila.
What Is Bank Reconciliation?
Bank reconciliation is the process of comparing your business records (books) to your bank statement to confirm they agree on your cash balance.
They almost never agree exactly, and that's expected. The goal is to explain every difference. Once all differences are explained by known timing items, the two balances reconcile — they represent the same reality from two different angles.
Your books show every transaction you recorded: every payment you sent, every deposit you logged.
The bank statement shows every transaction the bank recorded: actual deposits cleared, actual payments processed, bank fees charged, interest earned.
The two differ because:
- You may have recorded a payment that the recipient hasn't deposited yet
- You may have deposited cash on the last day of the month that the bank credited on the first of the following month
- The bank may have charged fees you haven't recorded yet
- Errors may exist on either side
Why Every Philippine Business Must Do This Monthly
Catch errors and fraud early. If an employee is pocketing cash before depositing it, the bank deposit will be less than what was recorded as collected. Regular reconciliation catches this within 30 days instead of a year.
Confirm your actual cash position. Many business owners use the bank app balance to decide if they can pay a supplier. But that app balance doesn't account for outstanding checks you've written. Reconciliation tells you your true available cash.
BIR compliance. Your books are the basis for your tax returns. If your books don't match reality (because you haven't reconciled and corrected errors), your tax returns are wrong. This is both an audit risk and a liability risk.
Month-end close accuracy. No meaningful financial statement is possible until the cash balances are confirmed accurate. Bank reconciliation is the first step of every month-end close.
Loan applications. Banks lending to SMEs often ask for 6 months of bank statements and want your declared income to align with your deposits. Regular reconciliation keeps these consistent.
The Anatomy of a Bank Statement
Before walking through the reconciliation, get familiar with what's in your bank statement.
Juana's BDO Statement (May 2025):
Balance, May 1 (Opening) ₱85,000.00
------------------------------------
CREDITS (Money In):
May 3 — Deposit ₱45,000.00
May 10 — Transfer from BPI ₱20,000.00
May 18 — Deposit ₱62,000.00
May 28 — Online transfer received ₱15,000.00
May 31 — Interest credited ₱180.00
------------------------------------
DEBITS (Money Out):
May 5 — Check No. 1021 ₱28,000.00
May 8 — ATM withdrawal ₱5,000.00
May 12 — Online transfer ₱18,000.00
May 20 — Check No. 1022 ₱35,000.00
May 28 — Monthly maintenance fee ₱300.00
------------------------------------
Balance, May 31 (Closing) ₱140,880.00
Step-by-Step Reconciliation
Step 1: Start with the Ending Bank Balance
Take the closing balance per your bank statement.
Bank Statement Ending Balance: ₱140,880.00
Step 2: Add Deposits in Transit
Deposits in transit are deposits you recorded in your books but that the bank hadn't credited by the bank statement's closing date (usually because you deposited on the last business day, and the bank processes it the next morning).
Juana deposited ₱30,000 on May 31 — the day the statement cut off. The bank credited it on June 1, so it's not in the May statement.
Bank Balance per Statement: ₱140,880.00
Add: Deposits in Transit: +₱30,000.00
Step 3: Subtract Outstanding Checks
Outstanding checks are checks you wrote and recorded in your books, but the payee hasn't presented them to the bank yet. The bank doesn't know about them.
Juana wrote Check No. 1023 for ₱22,000 on May 29. The supplier hasn't deposited it yet.
Bank Balance (adjusted): ₱170,880.00
Less: Outstanding Checks: -₱22,000.00
= Adjusted Bank Balance: ₱148,880.00
Step 4: Start with Your Book Balance
Now look at your books (your accounting records or cash ledger). What does your record show as the bank account balance on May 31?
Book Balance per Juana's Records: ₱148,700.00
Step 5: Add Items in the Bank Statement Not Yet in Your Books
Bank-side items that haven't been recorded in your books yet.
- Interest earned: ₱180 (bank credited this, but Juana hasn't recorded it)
Book Balance: ₱148,700.00
Add: Bank interest earned: +₱180.00
Step 6: Subtract Bank Charges Not Yet in Your Books
- Monthly maintenance fee: ₱300 (bank debited this, not yet in Juana's books)
Book Balance (adjusted): ₱148,880.00
Less: Bank maintenance fee: -₱300.00
= Adjusted Book Balance: ₱148,580.00
Wait — the adjusted bank balance is ₱148,880 and the adjusted book balance is ₱148,580. There's a ₱300 difference. Let's fix the arithmetic.
Actually: Bank (₱140,880 + ₱30,000 − ₱22,000 = ₱148,880). Books (₱148,700 + ₱180 − ₱300 = ₱148,580).
These don't match. There's still a ₱300 discrepancy. Juana goes back and looks...
She finds she recorded a payment of ₱500 for supplies but the actual amount on the receipt was ₱800 (a ₱300 understatement). She needs to correct this:
Adjusted Book Balance: ₱148,580.00
Less: Correction of expense error: -₱300.00
= Final Adjusted Book Balance: ₱148,280.00
Hmm — now she's further off. Let me use a cleaner example that actually reconciles:
Complete Example (Clean Numbers)
Let's reset with clean numbers that reconcile properly.
Juana's May 2025 Reconciliation:
| Amount | |
|---|---|
| Bank Statement Closing Balance | ₱140,880 |
| Add: Deposits in transit (May 31 deposit credited June 1) | +₱30,000 |
| Less: Outstanding checks (Check 1023, ₱22,000) | -₱22,000 |
| = Adjusted Bank Balance | ₱148,880 |
| Amount | |
|---|---|
| Book Balance (per Juana's records) | ₱149,000 |
| Add: Bank interest (not yet recorded) | +₱180 |
| Less: Bank maintenance fee (not yet recorded) | -₱300 |
| = Adjusted Book Balance | ₱148,880 |
Adjusted Bank Balance = Adjusted Book Balance = ₱148,880. Reconciliation complete.
Journal Entries After Reconciliation
The reconciliation reveals two items Juana hasn't recorded in her books: bank interest (₱180) and bank maintenance fee (₱300). She posts these as journal entries in May:
For bank interest received:
BDO Checking Account (asset) ₱180
Interest Income (revenue) ₱180
For bank maintenance fee:
Bank Charges (expense) ₱300
BDO Checking Account (asset) ₱300
After posting these entries, Juana's book balance updates from ₱149,000 to ₱148,880 — matching the adjusted bank balance.
Common Reconciling Items for Philippine Businesses
GCash and Maya Settlements
GCash Business and Maya merchant payouts don't always settle daily. A payment received on May 30 may appear in your e-wallet on June 2 (a deposit in transit). Treat these exactly like bank deposits: if you've recorded the income in your books but the cash hasn't hit the bank/e-wallet yet, it's a deposit in transit.
Shopee, Lazada, and TikTok Payouts
Marketplace settlements typically arrive 7–15 days after the order is confirmed. If you recorded the sales income when the order was placed (or when delivered), the settlement to your bank account happens later — this creates a timing difference tracked through your "Settlement Receivable" account, not through bank reconciliation directly.
Returned Checks (Bounced Checks)
You deposit a customer check on May 25, record it as income, and the bank credits your account. In June, the bank reverses the credit because the check bounced. This creates a situation where your May books show the deposit but the bank reversed it in June. You'll need a June journal entry to reverse the income and record a receivable (the customer still owes you the money).
BancNet and PESONet Transfers
Inter-bank transfers via PESONet may take 1 business day to reflect. A transfer initiated on Friday afternoon may appear in the bank on Monday. This is a common deposit-in-transit item for businesses with active inter-account transfers.
Reconciliation Red Flags
These patterns in your reconciliation should prompt investigation:
Growing list of outstanding checks. If checks from 60, 90, or 120 days ago are still "outstanding," either the payees never deposited them (follow up — the checks may be lost), or the checks were recorded in your books but never actually issued.
Unexplained bank debits. Any bank debit you don't recognize should trigger an immediate call to BDO/BPI/etc. This is how unauthorized transactions are caught.
Reconciling items that never clear. A "deposit in transit" that hasn't cleared after 5 business days is unusual and should be investigated with the bank.
Book balance consistently exceeding bank balance. Could indicate recording deposits before they're actually made, or recording payments that were returned or canceled.
How Often to Reconcile
Monthly is the minimum for any business with more than a handful of transactions. Set aside time in the first week of each month to reconcile the prior month.
Weekly reconciliation is reasonable for high-volume businesses (retail, restaurants, online stores) where errors compound quickly. A week of unreconciled transactions is much easier to investigate than a month's worth.
Daily reconciliation is the norm for businesses with cash handling risks or where the owner is the sole person with financial visibility. Restaurant and retail businesses often reconcile daily sales to the POS system before reconciling the POS to the bank.
Bank Reconciliation in Akauntants
In Akauntants, bank reconciliation works as follows:
- Connect your BDO/BPI/UnionBank account via the bank feed (direct connection)
- Akauntants imports transactions automatically
- The system matches bank transactions to your recorded entries
- You review and confirm matches
- Unmatched transactions are flagged — you either match them to an existing entry or record new entries
- At month-end, your reconciliation report shows all cleared and outstanding items
For banks without direct feeds, upload your bank statement CSV (downloadable from your online banking portal). The import-and-match workflow is the same.
The principle is unchanged from the manual method — you're just letting software do the matching instead of doing it row by row in Excel. The review step (understanding the remaining unmatched items) is still yours to do, and that's where your understanding of deposits in transit, outstanding checks, and bank-only items matters.
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