A bank reconciliation compares the balance in your own records with the balance on your bank statement, and explains any difference. It sounds like an accountant's chore, but it is the fastest way to catch missed payments, double entries and fraud, and it makes your tax returns more reliable.

Why differences happen

Your cashbook and the bank statement rarely agree on the same day because of:

  • Outstanding cheques, which you recorded but the bank has not yet paid
  • Deposits in transit, which you recorded but have not reached the account
  • Bank charges and interest, which the bank has recorded and you have not
  • Direct credits, such as a customer paying straight into the account
  • Errors, such as a transposed figure or a payment entered twice

The steps

  1. Get the statement for the month, and the cashbook for the same dates. M-Pesa and mobile banking statements work the same way.
  2. Tick off matching items. Go line by line and tick every receipt and payment that appears in both.
  3. List what is unticked in the cashbook. These are your outstanding cheques and deposits in transit.
  4. List what is unticked on the statement. These are bank charges, direct credits and items you forgot.
  5. Update the cashbook for the items on the statement that you had not recorded.
  6. Work out the adjusted bank balance: the statement balance, plus deposits in transit, less outstanding payments.
  7. Compare it with the updated cashbook balance. They should match. If they do not, look for an error equal to the difference, or to half of it, which hints at an item entered on the wrong side.

The free bank reconciliation statement template sets out these steps in one sheet, so the adjusted balances calculate themselves. Pair it with the free simple cashbook for your day-to-day entries.

An example

Your cashbook shows KES 182,500 and the bank statement shows KES 189,000. The difference is explained by three items: bank charges of KES 2,500 that are not yet in your books, a cheque of KES 14,000 you issued that the bank has not paid, and a deposit of KES 5,000 that has not reached the account. After recording the charges your cashbook is KES 180,000. The adjusted bank balance is 189,000 + 5,000 - 14,000 = KES 180,000. The two agree, so the reconciliation is complete. The template does this arithmetic for you, and shows at once when the two sides do not match.

Petty cash

Cash held in the till should be reconciled too. The free petty cash book (imprest) keeps a float topped up to a fixed amount and shows what has been spent.

How often to reconcile

Do it monthly at a minimum, and weekly if you handle many transactions. A late reconciliation is harder, because you have to remember what each item was.

Why it helps with tax

Your returns are built on the same numbers. A VAT return that does not match your sales can attract questions; see how to file a VAT return. Reconciled records also make it easier to prove income if KRA asks, which is covered in how to keep business records for KRA.

Red flags to investigate

  • Payments you do not recognise
  • The same amount paid twice
  • Cheques unpresented for months
  • Large cash deposits without a matching sale

Tools and next steps

Once your reconciliation works, connect it to the rest of your finances. A monthly profit and loss statement built from reconciled figures is far more trustworthy, and the KRA filing and payment calendar reminds you to reconcile before every return is due. If you are new to tax records, begin with how to get a KRA PIN and the tax records checklist.

Reconciliation is a control as much as a calculation. Keep the signed reconciliation with your records.