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Account reconciliation is the process of reconciling an account balance against a set of financial records to ensure that the balance is complete and accurate.
Typically, account reconciliation involves comparing financial records from different sources—such as bank statements versus internal accounting records—against each other to identify and resolve any discrepancies.
For account reconciliation, the process usually involves comparing the general ledger balance of an account against an additional external or internal system of record to verify that the balance in the account in question is correct.
The goal of account reconciliation specifically is to reconcile the balance of a given account. While it is very similar to both transaction reconciliation and balance reconciliation, account reconciliation focuses on reconciling the overall balance or activity within an account rather than reconciling the individual transactions themselves.
The process of account reconciliation is crucial for identifying discrepancies or errors in accounts and resolving them to maintain the integrity of financial data, successfully close the books, and accurately produce financial statements and documents relevant to the business. Account reconciliation is also an important part of helping businesses to detect and prevent fraud, prepare for annual tax filings, and comply with any necessary financial regulations.
Account reconciliation is generally performed on a regular basis, generally monthly and at the end of a given accounting period.
What are the Different Types of Account Reconciliation?
Account reconciliation is applicable to a wide variety of different types of reconciliation, depending on the situation, including:
- Bank Reconciliation: Looking at bank transactions and statements (withdrawals and deposits, checks, electronic payments, etc.) and then reconciling those transactions against the business’ own ledger.
- Vendor Reconciliation: Comparing the transaction records of a vendor or supplier against the business’ own ledger.
- Intercompany Reconciliation: Reconciling statements and transactions between different entities within the same parent company.
- Business Specific Reconciliation: Looking at transactions for a specific business unit.
- Petty Cash Reconciliation: Verifying the accuracy of all transactions in a petty cash fund.
- Credit Card Reconciliation: Reconciling purchase receipts from a card company against internal purchase records for the given cards.
How Does Account Reconciliation Work?
There are two basic approaches to account reconciliation:
Document Review: This is reconciliation completed by comparing the business’s financial records against source documents for the account at hand, such as receipts, invoices, or other financial statements. Very similar to transaction reconciliation, this type of account reconciliation aims to identify any discrepancies between the internal and external records for the account.
Historical Analysis: This is reconciliation completed by comparing historical records of the account in question with the current records for the account. By comparing the historical records and projections against the current balance, this type of account reconciliation can identify potential discrepancies within the account.
As with all types of reconciliation, any discrepancies will need to be investigated to determine their cause and corrected to ensure that the account reconciliation is complete and accurate.
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Bank reconciliation is the process of verifying the completeness of a transaction through matching a company’s balance sheet to their bank statement.
Continuous accounting is the ongoing process of updating a business’s general ledger with reconciled bank statement transactions as soon as they become available.
Financial reporting empowers businesses to make informed financial decisions by identifying trends and tracking performance. It also offers insights into a company's assets, liabilities, and debt management strategies.
Month-end close is a critical process where the accounting team reviews and records financial transactions to close out the month.
Recoupment refers to the recovery of spent or lost funds, especially in business operations.
Incoming payment details are notifications that a company is going to receive a payment it didn’t originate—meaning the receiving funds were not initially requested.
Account reconciliation is the process of reconciling an account balance against a set of financial records to ensure that the balance is complete and accurate.
Balance Reconciliation is the process of verifying and ensuring: -That the expected and actual balances in a given account are correct -That the actual balance of an account is sufficient to cover planned transactions
Batch processing is a method of processing various types of transactions. As the name suggests, transactions are processed in a group or “batch.”
Multi-step reconciliation is the process of dealing with three or more systems of record, that all need to be reconciled against one another.
Transaction reconciliation is the process of matching two different data sets at the transaction level. This allows companies to verify that transactions have happened appropriately.
The 10-K is a comprehensive report mandated by the U.S. Securities and Exchange Commission (SEC) that publicly traded companies must file annually. This report provides a thorough overview of a company's financial performance over the past year.
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