Bank Reconciliation: Steps, Format and a UAE Example

A bank reconciliation compares the bank account in your books with the bank statement for the same date and explains every difference between them. Some differences are just timing, such as cheques you've issued that haven't cleared yet, and you only list them. Others are items the bank has recorded but you haven't, such as bank charges, transfers received and bounced cheques, and you post those to your books. When you're done, the adjusted balances agree, and your ledger shows the cash you really have.

How we wrote this guide. The method is standard accounting practice. The UAE VAT point on bank charges comes from the VAT Executive Regulation, published by the Federal Tax Authority (FTA). The examples are ours. Facts last verified: 3 November 2026.

Why Reconcile Your Bank Accounts

Catch errors: wrong amounts, duplicate entries and payments posted to the wrong account.
Spot fraud early: unauthorised payments show up as items you can't match.
Know your real cash: the ledger balance is only useful if it matches the bank.
Claim VAT you're owed: bank charges carry VAT that you can usually recover, but only if you record them.
Close the month and pass the audit: a reconciled bank balance is one of the first things an auditor checks.

The Two Kinds of Reconciling Items

In the bank statement but not in your books. Post these to your ledger:

Bank charges, fees and the VAT on them.
Interest received or paid.
Direct debits and standing orders.
Customer transfers you haven't recorded yet.
Cheques you deposited that were returned unpaid.
Card settlements and payment gateway payouts, and their fees.

In your books but not yet in the bank statement. List these, and don't post anything:

Unpresented cheques: cheques you've issued that the supplier hasn't cashed yet.
Deposits in transit: money you've deposited that the bank hasn't credited by the statement date.

Errors can fall on either side, such as an amount keyed wrongly in your books or a bank mistake. Correct your own errors in the ledger, and ask the bank to correct theirs.

Bank Reconciliation Statement Format

Balance per bank statement                          X
Add: deposits in transit                            +
Less: unpresented cheques                           -
Adjusted bank balance                               A

Balance per ledger (cash book)                      Y
Add: credits on the statement not in the ledger     +
Less: debits on the statement not in the ledger     -
Adjusted ledger balance                             A

The two adjusted balances must be equal. If they aren't, something is still unmatched.

How to Do a Bank Reconciliation: 8 Steps

Get the bank statement for the period, and the ledger report for the same bank account and dates.
Check the opening balances. The opening balance should match last month's reconciled balance.
Match deposits. Tick each receipt in your ledger against a credit on the statement.
Match payments. Tick each payment in your ledger against a debit on the statement.
List the unmatched items on both sides.
Post the bank-side items to your ledger: charges with their VAT, interest, direct debits, unrecorded transfers and returned cheques.
Prepare the reconciliation statement using the format above, and check that the adjusted balances agree.
Review and file it. Have someone other than the preparer review it, and keep it with the bank statement as evidence.

A Worked Example

A Dubai trading company reconciles its AED account on 31 October.

The bank statement shows AED 85,400. Comparing it with the ledger:

A customer cheque for AED 6,000 was deposited on 31 October and credited by the bank on 2 November: a deposit in transit.
A supplier cheque for AED 9,500 issued on 29 October hasn't been presented: an unpresented cheque.

Adjusted bank balance: 85,400 + 6,000 − 9,500 = AED 81,900.

The ledger shows AED 82,557.50. The statement includes three items the ledger doesn't:

A customer transfer of AED 2,500.
Bank charges of AED 150, plus VAT of AED 7.50.
A customer cheque for AED 3,000, recorded as received earlier in the month, returned unpaid.

Adjusted ledger balance: 82,557.50 + 2,500 − 157.50 − 3,000 = AED 81,900. The two balances agree.

The entries to post:

Customer transfer: debit bank AED 2,500, credit accounts receivable AED 2,500.
Bank charges: debit bank charges AED 150 and input VAT AED 7.50, credit bank AED 157.50.
Returned cheque: debit accounts receivable AED 3,000, credit bank AED 3,000, and follow up with the customer.

VAT on Bank Charges in the UAE

Financial services charged through an explicit fee or commission are standard-rated at 5% under Article 42 of the VAT Executive Regulation, while interest-based services are generally exempt. So bank charges, transfer fees and card processing fees usually carry VAT, which you can normally recover as input VAT if your sales are taxable. Ask your bank for a tax invoice or VAT statement for its fees, and post the VAT separately instead of including it in the bank charges expense. Our guide to UAE VAT categories explains exempt and taxable financial services.

Card Settlements and Payment Gateways

Card and online payments usually reach your bank a day or more after the sale, often in batches and net of fees. To reconcile them:

Record the gross sales when they happen, against a card or gateway clearing account.
When the payout arrives, match it to the batch of sales it covers.
Post the fee and its VAT as expenses, from the provider's statement.
The clearing account should come back to zero, apart from settlements still in transit.

Example: AED 10,000 of card sales with a 2% fee of AED 200 plus AED 10 VAT arrive as a payout of AED 9,790. The clearing account is credited with AED 10,000: AED 9,790 to the bank, AED 200 to fees and AED 10 to input VAT.

Post-Dated Cheques

Post-dated cheques are common in the UAE, for example for rent or supplier terms. Don't record a post-dated cheque you've received as a bank receipt until you deposit it on or after its date. Keep a separate register of post-dated cheques received and issued, so the bank ledger only shows cheques that have actually been deposited or presented.

Foreign Currency Accounts

Reconcile a USD or EUR account in its own currency first, so you're comparing like with like. Then revalue the balance into dirhams at the month-end exchange rate and post the difference to a foreign exchange gain or loss account, as IAS 21 requires for monetary items.

Bank Reconciliation in Excel

If you reconcile in a spreadsheet, put the bank statement export on one sheet and the ledger export on another, each with date, description and amount columns. Then flag matches in the ledger sheet. This formula looks for the same amount on the bank sheet within three days of the ledger date:

=IF(COUNTIFS(Bank!C:C, C2, Bank!A:A, ">="&A2-3, Bank!A:A, "<="&A2+3)>0, "Matched", "Check")

Filter on "Check" to see the items to investigate. Spreadsheets work for one or two accounts with few transactions, but they get slow and error-prone as volumes grow, and they leave no audit trail of who matched what.

How Often to Reconcile

Every month, as part of your month-end close, at a minimum.
Every week for your main operating account, so each reconciliation is small.
Every day for accounts with heavy card or gateway activity.

Common Mistakes

Posting timing items such as unpresented cheques to the ledger, then reversing them later.
Leaving old items on the reconciliation for months without investigating them.
Recording bank charges without the VAT, so input VAT goes unclaimed.
Recording post-dated cheques early as cash in the bank.
Netting card fees against sales, which understates revenue and hides the fees.
Reconciling only the balance without matching individual transactions.

Where Octate Fits

Octate's accounting covers the general ledger, receivables, payables, bank reconciliation and multi-currency accounting in one system, with a full audit trail. Sales receipts and supplier payments post to the same ledger, so most bank lines already have a matching entry when you reconcile. See accounting and finance.

Quick Answers

What is a bank reconciliation? Comparing the bank account in your books with the bank statement for the same date, explaining every difference, and correcting your books where needed.

What is the format of a bank reconciliation statement? Start from the bank statement balance, add deposits in transit and subtract unpresented cheques. Then start from the ledger balance, add or subtract the bank items not yet recorded. The two adjusted balances must agree.

Why is a bank reconciliation done? To catch errors and fraud, confirm your true cash balance, record charges and receipts you missed, and support your month-end close and audit.

How often should you reconcile your bank account? At least monthly. Weekly for your main account, and daily for high-volume card accounts.

What are unpresented cheques? Cheques you've issued and recorded that the payee hasn't cashed by the statement date.

What is a deposit in transit? Money you've deposited and recorded that the bank hasn't credited by the statement date.

Do bank charges have VAT in the UAE? Usually, yes. Financial services charged as an explicit fee or commission are standard-rated at 5%.

Can I do a bank reconciliation in Excel? Yes, for a small number of transactions. Put both exports side by side and use a COUNTIFS formula to flag matching amounts and dates.

Sources

Federal Tax Authority: Executive Regulation of the VAT law, as amended to Cabinet Decision No. 149 of 2026, Article 42 on financial services (an unofficial English translation published by the FTA)
IFRS Foundation: IAS 21 The Effects of Changes in Foreign Exchange Rates
Octate: accounting and finance

Checked on 3 November 2026.