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What is reconciliation in accounting?

Reconciliation in accounting is the process of ensuring that two sets of financial records agree. Account reconciliation helps you see discrepancies between statements and your accounting ledger to confirm the consistency and accuracy of your books.

What are the different types of reconciliation?

The different types of reconciliation include bank, customer, vendor, intercompany, and business-specific reconciliation.

  • Bank reconciliation is when you attempt to match your bank statement with your business records and accounting ledgers to ensure they are in sync.
  • Customer reconciliation is when you compare and verify information from business records and accounting ledgers to customer balances.
  • Vendor reconciliation is when you match vendor invoices to purchase orders, ensuring the accuracy of inventory levels and payments.
  • Intercompany reconciliation is when you sync accounting records between two or more separate legal entities that are part of one single entity.
  • Business-specific reconciliation varies according to organizational needs and business activity. For example, a firm that manufactures products may physically count its inventory and compare it against the inventory reflected on its books and records.

How to reconcile an account?

Account reconciliation can be done manually or electronically by checking records for inconsistencies. Here’s an example of how to do bank reconciliation:

  • Gather and compare your statements – Look at the activity on your bank statements compared to your books and records.
  • Identify missing transactions – Find transactions that appear on either the bank statement or your transaction list, but not both.
  • Update your balances – Record missing transactions, which may include service charges or automatic payments. Add deposits that haven’t cleared yet to your bank statement balance and subtract any outstanding checks.
  • Compare totals and ending balances – Make sure your total reconciled bank statement balance agrees with the balance on your books.

Automated reconciliation improves the quality and efficiency of account reconciliation by eliminating human error, which is common when you reconcile accounts manually or using a spreadsheet. Automated account reconciliation tools perform reconciliation work with ease and more accuracy in real-time.  


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