What Is Reconciliation?
Reconciliation is an accounting procedure that compares two sets of records to check that the figures are correct and in agreement. Reconciliation also confirms that accounts in a general ledger are consistent and complete. Reconciliation can be used for personal as well as business purposes.
Account reconciliation is particularly useful for explaining any differences between two financial records or account balances. Some differences may be acceptable because of the timing of payments and deposits. Unexplained or mysterious discrepancies, however, may warn of fraud or cooking the books. Businesses and individuals may reconcile their records daily, monthly, quarterly, or annually.
- Companies use reconciliation to prevent balance sheet errors on their financial accounts, check for fraud, and make sure that transactions were appropriately booked to the general ledger.
- In double-entry accounting, each transaction is posted as both a debit and a credit.
- Individuals can also use reconciliation to check the accuracy of their bank and credit card account statements.
How Reconciliation Works
There is no standard way to perform an account reconciliation. However, generally accepted accounting principles (GAAP) require double-entry bookkeeping—where a transaction is entered into the general ledger in two places—making it the most prevalent tool