What is the definition of account reconciliation?

Account reconciliation is the accounting process of comparing two sets of records to ensure the figures are correct and in agreement. It involves confirming that the balance in the general ledger matches an independent source, such as a bank statement.

Why is reconciliation important?

Reconciliation is critical for detecting fraud, identifying accounting errors, ensuring accurate financial reporting, and maintaining compliance with regulations like SOX.

How often should accounts be reconciled?

High-volume accounts like cash and credit cards should be reconciled monthly (or even weekly). Other balance sheet accounts like Fixed Assets may be reconciled quarterly.

Blog Post

Education
January 13, 2026

What is Account Reconciliation? Definitions and Examples

If accounting is the language of business, reconciliation is the spellcheck. Account reconciliation is the process of comparing two sets of records to ensure they match. It is the fundamental control that ensures your financial statements—your Balance Sheet and Income Statement—are accurate. Without it, you are flying blind.

A Clear Definition

At its core, account reconciliation involves verifying that an account balance in your General Ledger (GL) is correct and supported by independent evidence.

Ideally, the GL balance and the external source (like a bank statement) should be identical. In reality, timing differences and errors mean they rarely are. Reconciliation is the act of identifying and explaining those differences.

Common Types of Reconciliation

While "Bank Recs" are the most famous, finance teams perform several types:

1. Bank Reconciliation

Comparison: Your GL Cash Account vs. Bank Statement.
Goal: Ensure all cash coming in and going out is recorded. (See our Ultimate Guide to Bank Recs).

2. Vendor Reconciliation

Comparison: Accounts Payable Ledger vs. Vendor Statement.
Goal: Ensure you don't owe suppliers more (or less) than you think. Crucial for maintaining credit terms.

3. Customer Reconciliation

Comparison: Accounts Receivable Ledger vs. Customer's Payment Records.
Goal: Resolve disputes over unpaid invoices and unapplied cash.

4. Intercompany Reconciliation

Comparison: Parent Company Ledger vs. Subsidiary Ledger.
Goal: Ensure internal transactions between entities balance to zero for consolidated reporting.

Real-World Example

Imagine your GL says you have $10,000 in the bank on Jan 31st. Your bank statement says you have $9,500.

Discrepancy: $500.
Investigation: You find a check for $500 written to a vendor on Jan 30th that hasn't been cashed yet ("Outstanding Check").
Resolution: You note this as a timing difference. The adjusted bank balance ($9,500 + $0) doesn't match yet, but adjusting for the outstanding check explains the gap.

Why Manual Reconciliation Fails

As transaction volumes grow, matching thousands of rows in Excel becomes impossible. Errors slip through, fraud goes undetected, and the monthly close drags on for weeks.

Reconwizz automates this entire process. It connects to your banks, credit cards, and ERP to match transactions automatically, leaving your team to focus on resolving the exceptions.

Move beyond definitions. See how automation puts theory into practice. Book a demo with Reconwizz and modernize your accounting today.

Bank Recon Guide Previous Post Risk Assessment Next Post