Reconciliation

Reconciliation is an accounting process that compares two sets of records to check that figures are correct and in agreement. Reconciliation also confirms that accounts in the?general ledger?are consistent, accurate, and complete. However, reconciliation can also be used for personal purposes in addition to business purposes.

Account reconciliation is particularly useful for explaining the difference between two financial records or account balances. Some differences may be acceptable because of the timing of payments and deposits. Unexplained or mysterious discrepancies, however, may warn of?fraud?or?cooking the books. Businesses and individuals may reconcile their records daily, monthly, or annually.

There is no standard way to perform an account reconciliation. However,?generally accepted accounting principles?(GAAP) require?double-entry accounting—where a transaction is entered into the general ledger in two places—and is the most prevalent tool for reconciliation.

Double-entry accounting is a useful way of reconciling accounts that helps to catch errors on either side of the entry. In double-entry accounting—which is commonly used by companies—every financial transaction is posted in two accounts, the credit account, and the debit account.

One account will receive a debit, and the other account will receive a credit. For example, when a business makes a sale, it debits either cash or accounts receivable (on the balance sheet) and credits sales revenue (on the income statement).