Bank Reconciliation: How One Company Fixed Four Months of Cash

Bank Reconciliation: How One Company Fixed Four Months of Cash

Illustrative anonymized composite, drawn from recurring patterns rather than a single engagement. The firm named below was not involved in it. Every dollar figure is invented and rounded. Nothing here is guaranteed or predictive.

A balance in the books and a balance at the bank can disagree for a long time before anyone checks. Bank reconciliation is the monthly comparison that catches the difference, and when it slips for a quarter the disagreement stops being a small bookkeeping item and becomes a question about whether you know how much cash you have.

The company in this composite is a $6 million distributor with a controller who left in the spring and a bookkeeper who kept the daily entries going. System Six is a Seattle bookkeeping and fractional CFO firm, and it fits one stage of the story: the monthly routine that follows the cleanup. System Six is a paid featured member of Sam's List.

What Four Months Without Bank Reconciliation Looked Like

The owner noticed it when the bank balance was lower than the number on the dashboard. The books said the company had about $412,000 in its operating account. The bank said about $371,000. A difference of about $41,000 is not a rounding problem.

Nobody had been careless in an obvious way. Entries were posted every day, invoices went out and bills were paid. What had stopped was the monthly step that compares the two sides. The controller's departure left that step without an owner, and each month it was easy to defer because the numbers looked about right.

That is the first lesson. A bookkeeping file can look healthy on every report and still be wrong in the one place that matters, because the reports are built from the same entries that have not been checked against the bank.

The limitation: a gap between the books and the bank is a symptom, not a diagnosis. Timing, unposted items and duplicates can all explain part of it, and the only way to know is to work through the transactions.

Finding the Unreconciled Transactions, One Month at a Time

The cleanup started with the oldest month that had a clean reconciliation, then moved forward one month at a time. Working forward matters because each month's ending balance becomes the next month's starting point, and a mistake carried forward makes every later month look wrong.

For each month, the work was the same. Match every bank transaction to a book entry. List what is in the books but not at the bank, such as checks written and not yet cleared. List what is at the bank but not in the books, such as fees and automatic payments. Then compare the adjusted balances.

In the composite, the unreconciled transactions fell into four groups. Some customer payments had been recorded twice, once when the deposit was entered and again when a payment import ran. A few customer refunds had gone out of the bank but had never been entered in the books. Bank fees and card processor charges had never been entered. And two deposits from a payment processor had been posted gross, before the processor's fees, so the books showed more cash than ever arrived.

Those four groups accounted for most of the difference. The rest was a few small items nobody could place, which the team listed and set aside.

The limitation: matching an entry to a bank line shows the amount agrees. It does not prove the entry is coded to the right account, which is a separate check.

What the Bank Reconciliation Showed About Month-End Close

The reconciliation did more than fix a number. It showed how the month-end close had been working, or not working.

With the duplicates removed and the missing fees entered, the profit and loss statement for each of the four months changed. Revenue was overstated in two of them because of the double-recorded payments. Expenses were understated because the fees were missing. The company's profit looked about $27,000 higher over the four months than the corrected books showed. The remaining explained difference, about $12,000, sat on the balance sheet, mostly a processor holdback that had been recorded nowhere, and did not touch profit.

That affected decisions. The owner had approved a hire and an equipment purchase partly on the strength of the stronger numbers. Neither decision was necessarily wrong, but both had been made on figures that were off.

A month-end close is the set of steps that turns a month of entries into reports you can trust. Reconciling the bank is usually among the first, because later steps depend on cash being right. Skipping it means every report after it carries the error.

The limitation: correcting prior months does not undo decisions made on the old numbers. It can show whether they still look reasonable, and in the composite the owner had to revisit one.

Where System Six Fits

This is the stage a firm like System Six fits. A company in this position needs someone to own the monthly reconciliation, a checklist that makes the close repeatable and a review that someone other than the preparer looks at.

System Six is based in Seattle and was founded in 2009. Its profile lists about 41 employees and says it serves clients nationwide, with a minimum of $1 million in revenue and monthly fixed fees starting at $800 a month. The profile says it serves small businesses generating between $1 million and $10 million of revenue, that the firm was acquired by a searcher in 2021, and that it helps organizations modernizing a finance function after an acquisition.

System Six is early in building a review history on Sam's List, so we do not cite a review count and describe the firm by what its profile says instead. System Six is a paid featured member of Sam's List.

System Six did not work with the company in this composite, and nothing here describes its results. The limitation, plainly: the profile does not say that System Six does bank reconciliation, catch-up cleanup or a month-end close, so ask whether it does and what each costs. The $1 million revenue minimum means a smaller company may not fit. Ask who prepares the reconciliation, who reviews it and how soon after month-end it is done.

The Monthly Bank Reconciliation Routine That Replaced It

Once the four months were fixed, the company set a routine so the gap could not reopen. The routine is short, and its value is in doing it on the same schedule every month.

In the composite, it had five steps. First, download the bank statement as soon as it is available. Second, reconcile every bank account and card account, not only the main operating account. Third, investigate and clear anything older than one month. Fourth, have a second person review the reconciliation and sign off. Fifth, only then run the monthly reports and send them to the owner.

The company also gave the task an owner and a backup. The first reconciliation had slipped because it belonged to the controller, and nobody inherited it. A named owner and a calendar date for each month fixed that.

The limitation: a routine makes the work repeatable, but it does not make it free. In the composite, the monthly reconciliation took the bookkeeper a few hours and the reviewer an hour, and the first two months took longer than that while the team learned the new steps.

What Worked, What Did Not and What Stayed Unresolved

By the end of the cleanup, the four months reconciled to the bank, and the corrected books showed cash within a few dollars of the bank balance. The monthly close moved to a regular schedule, and the owner could read the cash figure on the dashboard again.

Several things did not work. One of the duplicate payments had already been refunded to a customer, which meant the books and the customer's records both needed correcting. Reconciling the payment processor accounts took longer than the bank accounts because the processor's reports were harder to match to deposits. And one reviewer, who had been reluctant to sign off on work they had not prepared, needed a clear definition of what a review covered.

One item stayed open. About $1,900 of the original gap came from small transactions across the four months that nobody could trace. The team recorded them as an adjustment with a note and decided to watch the account. They did not know whether they were fees, timing items or a small error, and the composite closes without an answer.

Different companies will find different problems, and the firm named here was not involved. What the composite does show is a sequence: reconcile the oldest unreconciled month first, work forward, keep a list of what cannot be explained, and give the monthly step an owner.

Frequently Asked Questions

What is a bank reconciliation?

A bank reconciliation compares the cash balance in your books with the balance on your bank statement and explains every difference. Common differences are checks that have not cleared, deposits in transit, bank fees and entry errors. It is usually done monthly for every bank and card account.

What causes unreconciled transactions?

Common causes include duplicate entries, deposits recorded before fees, checks voided at the bank but not in the books, bank fees never entered and payments applied to the wrong account. Timing differences are normal and clear on their own. Anything that stays unmatched for more than a month deserves a closer look.

How often should a business do a bank reconciliation?

Monthly is the usual minimum, done soon after the statement is available. Businesses with heavy transaction volume sometimes reconcile weekly. Ask your bookkeeper or CPA how often fits your volume and what review step they recommend.

Can I fix several months of unreconciled cash at once?

Usually the work is done one month at a time, starting from the last month that reconciled and moving forward, because each month's ending balance feeds the next. How long it takes depends on how many transactions are involved and how many are errors. Ask a bookkeeper to scope it before you commit.

If your books and your bank no longer agree, start with the oldest month you can reconcile, then browse fractional CFOs on Sam's List, including the firm above, and ask each how it would run the monthly close.

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About the author: Kimberly Green is cofounder of Sam’s List, a directory and matching platform for financial professionals.