Reconciliation (accounting)

The following two definitions are given by the Oxford Dictionary of Accounting.

i) “A procedure for confirming that the balance in a chequebook matches the corresponding bank statement. This is normally done by preparing a bank reconciliation statement.

ii) A procedure for confirming the reliability of a company’s accounting records by regularly comparing [balances of transactions]. An account reconciliation may be prepared on a daily, monthly, or annual basis.”

GAAP (The Generally Accepted Accounting Principles) are a set of accounting principles, procedures and standards that organisations use in order to compile their financial statements. GAAP states that the purpose of account reconciliation is to provide accuracy and consistency in financial accounts. To ensure all cash outlays and inlays match between cashflow statements and income statements it is necessary to carry out reconciliation accounts.

Reconciliation is a process that may benefit businesses as this may help avoid balance sheet errors which may have led to detrimental ramifications, in addition reconciliation may help against fraud and can help instill financial integrity.

Accounting software is one of a number of tools that organisations use to carry out this process thus eliminating errors and therefore making accurate decisions based on the financial information. Reconciliation of accounts determines whether transactions are in the correct place or should be shifted into a different account.

Reconciliation in accounting is not only important for businesses, but may also be convenient for households and individuals. It is prudent to reconcile credit card accounts and chequebooks on a regular basis, for example. This is done by comparing debit card receipts or check copies with a persons bank statements.

The benefits of reconciling:

To ensure the reliability of the financial records, reconciliations must, therefore, be performed for all balance sheet accounts on a regular and ongoing basis. A robust reconciliation process improves the accuracy of the financial reporting function and allows the finance department to publish financial reports with confidence.

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Wikipedia