Reconciliation

Businesses keep many related records that should match. Reconciliation checks that they do. Common examples include matching the cash balance in the accounts to the bank statement, matching amounts owed to a supplier with the supplier's statement, and matching subsidiary ledgers, such as a list of customer balances, with totals in the general ledger.

For example, a company's records show 45,000 owed to a supplier, but the supplier's statement shows 47,000. Investigating the 2,000 difference might reveal an invoice that has not yet been recorded, or a payment the supplier has not yet received.

Differences usually arise from timing, such as items recorded by one side but not yet by the other, or from errors, such as amounts entered incorrectly or transactions missing or duplicated.

Regular reconciliation is a key internal control. It catches errors early, helps detect fraud and ensures financial statements are accurate. Most businesses reconcile important accounts monthly as part of their financial close process.

A reconciliation is complete when every difference has been explained and any necessary corrections have been recorded.