What is account reconciliation?

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Account reconciliation is the process of comparing two sets of financial records to verify that they agree — and investigating any differences until they are explained or corrected. It is one of the most fundamental controls in finance, and one of the most time-consuming.

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In practice, reconciliation happens across multiple account types: bank accounts are reconciled against bank statements, accounts receivable subledgers are reconciled against the general ledger, intercompany balances are reconciled between entities, and payment gateway records are reconciled against bank settlements.

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Why account reconciliation matters

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Unreconciled accounts produce unreliable financial statements. If the cash balance in your GL does not agree with your bank statement, you do not have an accurate picture of your cash position. If your AR subledger does not agree with your GL, your revenue and receivables figures are wrong.

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Beyond accuracy, reconciliation is a core audit requirement. Auditors will test whether balance sheet accounts are reconciled at period end and whether exceptions are investigated and resolved. An organisation that cannot demonstrate clean reconciliations at close has a controls problem.

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How account reconciliation works

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A standard reconciliation follows four steps:

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1. Extract source data. Pull the balance from both systems being compared — for example, the GL cash account balance and the bank statement closing balance.

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2. Match transactions. Match individual transactions between the two sources. Transactions that appear in both sources are cleared. Transactions that appear in only one source are flagged as exceptions.

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3. Investigate exceptions. Each unmatched item is investigated. Common causes include timing differences (a payment issued but not yet cleared by the bank), data entry errors, duplicate postings, and missing transactions.

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4. Adjust and certify. Legitimate timing differences are noted and carried forward. Errors are corrected via journal entries. Once all exceptions are explained, the account is certified as reconciled.

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Types of account reconciliation

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Bank reconciliation — GL cash balance vs bank statement. Subledger reconciliation — AR or AP subledger vs general ledger control account. Intercompany reconciliation — balances between related entities. Payment reconciliation — payment gateway records vs bank settlement vs ERP. Balance sheet reconciliation — all balance sheet accounts at period end.

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Where reconciliation breaks down

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Most reconciliation problems are not caused by the matching itself — modern systems can automate transaction matching accurately. The problems live in the exceptions: items that don't match, reasons that are hard to trace, and workflows that depend on the right person being available to approve a correction.