Every bookkeeper knows the end-of-month feeling of a bank reconciliation that won't balance. The bank statement shows one figure; the accounting software shows another. Between them is a list of unreconciled items — transactions that appear in one place but not the other, or that appear in both places with different amounts.
The items themselves are rarely the problem. The problem is how they accumulate when not addressed systematically. A reconciliation with 200 outstanding items from the past six months is exponentially harder to resolve than one with five items from the past week.
This guide covers the most common types of unreconciled items, how to investigate each one, and how to prevent the accumulation that turns routine reconciliation into a major project.
The Bank Reconciliation Equation
The reconciliation works when:
Bank statement closing balance + Outstanding deposits − Outstanding payments = Book balance
Or equivalently: the difference between the bank balance and the book balance should equal the total of deposits in transit minus outstanding cheques/payments.
When the reconciliation doesn't balance, the difference lives in one of these four places:
- A transaction on the bank statement not recorded in the books
- A transaction in the books not on the bank statement (timing difference — acceptable)
- A transaction recorded in the books at a different amount than the bank statement
- An error in the bank statement (rare, but possible)
Type 1: Bank Transactions Not in the Books
These are transactions that have appeared on the bank statement but haven't been coded in the accounting software. Common causes:
Bank charges and fees. Monthly account fees, transaction fees, dishonour fees, and international transfer charges often appear on the statement without a corresponding entry in the books.
Interest earned or charged. Interest credits on savings accounts or interest charges on overdrafts appear on the bank statement but may not be automatically entered in the software.
Direct debits the bookkeeper wasn't told about. The client set up a new direct debit for a software subscription, insurance, or loan — and didn't mention it. It starts appearing on the statement without a corresponding transaction in the books.
Refunds processed by customers. A customer return processed via credit card or direct refund appears as a credit on the statement.
Investigation: Download the bank statement for the period and compare it line-by-line against the reconciliation report from the accounting software. Unmatched statement items need to be coded.
Type 2: Timing Differences (Expected and Acceptable)
Some timing differences are normal and expected:
Deposits in transit: Payments received and recorded in the books but not yet cleared the bank at the reconciliation date. This is standard for cheques or end-of-day EFTPOS settlements.
Outstanding payments: Payments recorded in the books (cheques written, EFT initiated) but not yet cleared the bank.
These items are acceptable at the reconciliation date — they should clear in the next period. If a timing difference has been outstanding for more than 45–60 days, it has graduated from an acceptable timing difference to a problem that needs investigation.
Investigation of old timing differences: A deposit that's been "in transit" for three months is probably an error — the cash was deposited but recorded twice, or recorded at a different amount. An outstanding payment from four months ago is probably a cheque that was never cashed (stale cheque) or an EFT that failed.
Type 3: Amount Differences (Coding Errors)
Amount differences occur when a transaction is recorded in both the books and the bank statement but at different amounts. Common causes:
Transposition errors. A payment of $2,456 recorded as $2,465 in the books. The transaction appears to match (same payee, similar date) but at a different amount.
Incorrect invoice amounts. An invoice was entered at $1,000 but the actual payment from the bank was $1,050 (the supplier increased their price or added a fee not on the original invoice).
Partial payments. An invoice for $5,000 was entered in full but only $2,500 was paid. The remaining $2,500 is an outstanding debtor, but if not tracked separately, the difference sits as an unreconciled item.
Investigation: Filter the reconciliation for matched transactions and sort by difference. Amounts that differ by exactly the same digit transposition, or by common fee amounts, often point to specific error types.
Type 4: Bank Errors
Bank errors are rare but do occur. An unrecognised debit (the bank incorrectly processed a payment) or a missing credit (a deposit that didn't process correctly) requires direct contact with the bank to investigate and reverse.
If you suspect a bank error, contact the bank with the specific transaction details and a written record of your request. Banks are required to investigate and resolve errors within a defined timeframe under the ePayments Code.
Systematic Investigation Protocol
For any reconciliation with more than a handful of unreconciled items, use a structured approach:
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Sort by date. The oldest unreconciled items are the highest priority — they've been sitting the longest and are hardest to investigate as time passes.
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Sort by amount. Large unreconciled items affect the balance most. A $15,000 unreconciled item matters more than ten $20 ones.
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Search by transaction description. If you can identify the payee or payer from the bank description, search the accounting software for matching transactions. A partial or mismatched coding becomes apparent.
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Check for duplicates. Enter the transaction amount in a search for duplicate entries. A $1,452.00 payment appearing twice in the books (double entry) is a common cause of a reconciliation being out by exactly $1,452.00.
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Check for reversed signs. A payment recorded as a receipt (or vice versa) creates a double-size discrepancy — if the item is $500, the reconciliation is out by $1,000.
Preventing Accumulation
The most effective way to manage unreconciled items is to resolve them in the period they arise, not at year-end.
Daily or weekly bank feed review. Accounting software with bank feeds allows a daily review of unmatched transactions. Five minutes a day catching new items is far less work than two hours at month-end investigating items whose origin is no longer obvious.
Transaction coding rules. Set up rules for recurring transactions — direct debits, regular suppliers, bank fees — so they're automatically coded and matched when they appear in the feed.
Monthly reconciliation completion standard. Establish a practice rule: the reconciliation for any period is not complete until all unreconciled items are either resolved or have a documented explanation. Carrying over unresolved items without explanation is not acceptable.
Client communication about new transactions. Establish a workflow with clients where they notify you of new direct debits, one-off payments, or unusual receipts before the reconciliation period closes. A simple monthly question ("did anything unusual come through the account last month?") catches most issues.
Clean bank reconciliations — zero unresolved items, documented explanations for timing differences — are the foundation of reliable financial accounts. Building the systematic habits that keep the reconciliation clean is one of the most valuable contributions a bookkeeper makes to a client's financial management.