How to Start Reconciling Your Books
What you actually need before your first bank reconciliation, what format it should be in, the common mistakes, and what done looks like.
Bank reconciliation is one of those tasks that gets described as "essential bookkeeping" in roughly the same breath as "tedious but necessary". For UK enterprises, it is more than just good practice – it is a required step for reliable reporting and compliance with Companies House and HMRC requirements. Yet most first-timers approach it with either dread or confusion, convinced it requires specialist knowledge. It does not. What it requires is the right data in the right format and a clear understanding of what you are trying to achieve. This is a practical guide to starting that process, regardless of which tool you eventually use.
What Bank Reconciliation Actually Is
At its simplest, bank reconciliation is ensuring that the information in your business accounting records matches the information in your bank account – the opening balance, the closing balance, and every transaction in between. The phrase "matches" does most of the work in that sentence. You are not trying to make the numbers match by adjusting them until they look right. You are verifying that they already match, and when they do not, understanding why. The reasons are usually mundane: timing differences, unrecorded bank charges, the occasional data entry error. But those mundane differences, left unchecked, compound into reconciliation problems that take hours to untangle later.
What You Actually Need to Start
Three Components:
1. Bank Statement
CSV is ideal. Most UK banks – Lloyds, HSBC, Barclays, NatWest, Monzo, Starling – let you download CSV files directly from online banking. If your bank only provides PDFs, you will need to convert them first. Conversion tools exist for 17+ UK bank formats, though this adds an extra step and potential formatting inconsistencies.
2. Your Accounting Software Export
This is your transaction list for the same period, exported from Xero, QuickBooks, Sage, FreeAgent, or Pandle. The format should be CSV or Excel. The data must cover exactly the same date range as your bank statement. This sounds obvious, but mismatched date ranges are the most common first-timer mistake.
3. A Single Complete Period
Start with the most recent complete month. Do not attempt to reconcile a whole year on your first go. You will spend more time chasing historical anomalies than learning the process. Once you understand how reconciliation works with one month, you can work backwards through earlier periods if needed.
File Formats and Why They Matter
CSV is the preferred format because it preserves transaction data in a structure that reconciliation tools can read directly. Dates stay as dates, amounts as numbers. Excel files work too, but introduce formatting quirks – merged cells, multiple sheets, formulas that break when exported. PDF statements are the worst option for direct reconciliation. They look clean on screen, but the data is locked in a visual layout rather than structured fields. PDF-to-CSV converters bridge the gap, though with varying success depending on the bank's statement layout. Some formats convert cleanly. Others require manual cleanup afterwards.
The Process, Demystified
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1
Pick Your Period
One complete month. Check that both your bank statement and accounting export cover the exact same start and end dates.
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2
Export Both Datasets
Bank statement from your online banking portal. Transaction list from your accounting software. Save both as CSV if possible.
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3
Check the Formats
Dates should be consistent – DD/MM/YYYY for UK records. Amounts should use the same convention for negatives. Some systems use minus signs, others separate debit and credit columns.
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4
Match Them
Every bank transaction should have a corresponding entry in your books. The ones that do not match are your reconciling items – the entire point of this exercise.
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5
Investigate the Unmatched
These fall into categories: timing differences (not yet posted), missing entries (need adding), errors (wrong amount or date), and bank charges (need booking in your software).
Common First-Timer Mistakes
What Goes Wrong and How to Avoid It:
- Reconciling too much at once. A year's worth of transactions on your first attempt guarantees confusion. Start with one month.
- Ignoring opening balances. If the opening balance in your accounting system does not match the bank statement, nothing downstream will reconcile properly. Verify the starting point before worrying about individual transactions.
- Forgetting bank feeds have a delay. Direct bank feeds in accounting software are not instant. Transactions can take one to three days to appear. This creates legitimate timing differences that will show as unmatched items.
- Confusing credit card statements with bank statements. They are different accounts. Reconcile them separately.
- Inconsistent VAT treatment. Check whether amounts include or exclude VAT consistently across both datasets. Mixing gross and net amounts creates false mismatches.
- Overlooking bank fees and interest. These appear on the statement but not in your books until you manually record them. Common errors include missing transaction fees, overdraft charges, and interest payments.
- Transposed digits. Manual entry errors like recording £2,590 instead of £2,950 will fail to match. These are harder to spot than missing transactions.
- Duplicate transactions. If you record the same payment both manually and via automatic bank feed, it will appear twice in your books but once at the bank. Reconciliation surfaces these duplicates.
What Done Looks Like
You know reconciliation is finished when three conditions hold: every bank transaction has been accounted for in your books, the closing balance in your accounting system matches the bank statement balance exactly, and you can explain every unmatched item with a documented reason. That last condition is critical. Reconciling items are not failures. They are legitimate timing differences, outstanding cheques, or pending transactions. The concern is not their existence but your ability to document why they exist. HMRC does not expect perfect alignment between your books and your bank at any given moment. They expect you to know why the alignment is imperfect and to have evidence supporting your explanation.
Tools and Automation
Manual reconciliation – printing statements, highlighting matches with a marker, calculating differences on a calculator – still works. It is just slow and error-prone at scale. Accounting software has built-in reconciliation features that automate the matching process, though these assume your data is already in the system via manual entry or bank feeds. If you are reconciling historical data or working across platforms, dedicated reconciliation tools handle the gap. We built ReconcileIQ to solve this specific problem – upload two CSV files, get matched and unmatched transactions in seconds, export the corrections. But the principle applies regardless of tool: good reconciliation software should make the mechanical work faster without obscuring what is actually happening to your data.
Frequency Matters
Industry guidance from ACCA Global and similar bodies recommends monthly reconciliation at minimum for consistent financial accuracy. Weekly is better if transaction volume allows. Daily reconciliation suits high-volume businesses, though the effort-to-benefit ratio becomes questionable for most SMEs. The longer you wait between reconciliations, the more difficult it becomes to trace anomalies back to their source. A discrepancy spotted within a week is usually easy to resolve – you remember the transaction, the paperwork is still accessible. A discrepancy discovered six months later requires forensic reconstruction of what happened and why.
Practical Steps That Actually Help
- Set a recurring calendar reminder to reconcile. The task only becomes routine if you do it routinely.
- Keep a log of outstanding items between reconciliations. Uncleared cheques from last month should not surprise you this month.
- Verify date formats before uploading files to any tool. DD/MM/YYYY and MM/DD/YYYY look identical until they cause a mismatch.
- When converting PDFs to CSV, check the output before relying on it. Not all converters handle complex layouts cleanly.
- Document your reconciling items. A simple spreadsheet noting why each unmatched transaction exists saves enormous time if HMRC asks later.
- If using bank feeds, understand the delay. Transactions posted today may not appear in your software until Monday.
Ready to Reconcile
ReconcileIQ handles the matching process in seconds. Upload your bank statement and accounting export, review the results, export corrections. No subscription required for basic reconciliation.
Try ReconcileIQ FreeFrequently Asked Questions
What date range should I use for my first reconciliation?
Start with a single complete month, ideally the most recent one. Attempting to reconcile an entire year on your first go is the most common beginner mistake. Once you understand the process with one month, you can work backwards through earlier periods.
Do I need CSV files or can I use PDF bank statements?
CSV is ideal because it preserves transaction data in a format that reconciliation tools can read directly. Most UK banks including Lloyds, HSBC, Monzo and Starling offer CSV downloads. If your bank only provides PDFs, conversion tools exist for 17+ UK bank formats, though you add an extra step and potential formatting issues.
How do I know if my reconciliation is actually finished?
Three checks confirm completion: every bank transaction has been accounted for in your books, the closing balance in your accounting system matches the bank statement balance exactly, and you can explain every unmatched item with a documented reason such as timing difference or bank charge.
What are reconciling items and should I be worried about them?
Reconciling items are transactions that appear in one dataset but not the other. Most are legitimate timing differences – cheques that have not cleared, direct debits scheduled but not yet posted, or transactions entered in your software but pending at the bank. The concern is not their existence but documenting why they exist.