What Are Account Reconciliations?
An account reconciliation refers to the process of reconciling an account balance to specified source data to ensure a balance is complete and accurate.
Generally, account reconciliations in finance and accounting compare the general ledger balance of an account to independent systems, third-party data, or other supporting documentation to substantiate the balance stated in the general ledger. The accountant responsible for the reconciliation must carefully review transactions and cross-reference them with multiple sources to verify the accuracy of those transactions in the composition of the balance.
Account reconciliations are typically done at the end of an accounting period, such as at the time of the monthly close. This ensures transactions that are being closed out are properly verified and the closing statements are accurate.
To reconcile different transactions to balances, accountants will compare the details in the business ledger to documents provided or maintained in outside sources, like a bank or vendor. These can include such documents as invoices, receipts, and transaction statements.
Account reconciliations are a critical accounting activity performed routinely, typically monthly, to ensure the validity of a business’s financial records. Performing account reconciliations routinely can also help a business to: