Account Reconciliation: Example, Types, Process, Best Practices


The procedure compares the booked value of what is owed/owned by one company with the balance of its counterpart. These are often cash transactions (i.e. one company lending funds to another) but another common example is one company declaring to dividends to another in the group. Customer reconciliations are performed by businesses which offer credit terms to their customers. Automating reconciliations will allow you to save time, save money, optimise the process, and streamline workflows. With the increased confidence in your financial data, you will be informed and have useful information in real-time which will translate into making better business decisions.

But you need to record your economic transactions all around the year in your general ledger. If you use cloud accounting software, this can be made relatively easy by using the reconciliation function. Xero’s online accounting software provides a real-time look at your cash flow.

For regulatory reasons, compliance issues, and adequate business functioning, balance sheet reconciliations prove to be crucial for a business’ success. ‍Most of these reasons have to do with financial implications and the protection of your organisation. At the same time, reconciling accounts will help you to better understand your company’s financial position at any point in time. When you have all your data in one place, comparing accounts and spotting errors is easier. An effective reconciliation tool is essential to avoid challenges that come with reconciling accounts manually. Depending on the size of your business, there are multiple challenges you might face with reconciling accounts across your organization.

  1. Cash reconciliation compares cash balance and cash receipts with one another.
  2. It considers various factors such as deposits, checks issued, fees, and other bank activity.
  3. These highly important processes require that all data is correct from the start.
  4. Reconciliation also confirms that accounts in a general ledger are consistent and complete.

Balance sheet reconciliation should happen in defined intervals, such as monthly, quarterly, or annually. In some businesses, balance sheet reconciliation may happen as frequently as every day. Obviously, automating this process is a surefire way to execute reconciliations on a daily or even weekly basis because it will be a time-consuming process otherwise. If the records don’t match, finance experts can investigate to find the reason and make changes where necessary. Examples of unintentional reasons for differences are missing invoices or unrecorded transactions. For intentional discrepancies, you might find fake checks or misuse of funds.

For business-specific reconciliation, you compare internal records at the start and end of a financial cycle. You’re looking to see if the goods sold or services provided match your internal records. For instance, financial organizations are often required to produce frequent reconciliations of accounts with client-owned funds, one of the more demanding business-specific reconciliations. Reconciling monthly transactions helps organizations discover problems promptly and resolve them faster.

What are the Risks of Not Reconciling Bank Statements?

The reconciliation has been successful if the same balance appears in the accounts of both companies, with it being a debtor in one company’s books and a creditor in the other’s. This, in essence, ensures that the consolidated accounts eliminate any artificial profit/loss from intercompany transactions. Luckily, you can ensure that your account reconciliations process is performed accurately and rapidly by standardising the process and utilising automation solutions like SolveXia.

How to reconcile balance sheet accounts

Or the payment you made to supplier A went into the accounts of supplier B due to a clerical error. Positions reconciliation is the process of verifying that a company is holding the same number of securities that a counterparty states they are holding for that company. The balances of the two sources are reconciled in order to make the verification. A main challenge in this activity is usually the lack of universal security identification.

Reconciliation Accounting: Types, Procedures, And Examples

This type of reconciliation usually starts with the ending balance in your organization’s records and compares it to the ending balance per the bank statement. This type of reconciliation usually starts with the ending balance per bank statement and compares it to the ending balance in your organization’s records. Last but not least is consumer reconciliation which is usually performed by businesses. Here, a comparison is drawn between the ledger records and the invoices received by the consumers.

For the current year, the company estimates that annual revenue will be $100 million, based on its historical account activity. The company’s current revenue is $9 million, which is way too low compared to the company’s projection. For example, a company may review its receipts to identify any discrepancies. While scrutinizing the records, the company finds that the rental expenses for its premises were double-charged. The company lodges a complaint with the landlord and is reimbursed the overcharged amount.

Bank Rec’s software can be purchased entirely upfront or via monthly subscription to include five users and carry out your reconciliation processes. It’s able to resolve matches, identify matches, and roll forward unmatched records. By using automation software, you will save valuable time and make the GL reconciliation process run seamlessly. The software is able to pull all data from the necessary systems and compare the data side-by-side. GL software will automate the workflow, safely store all data, store all policies for quick reference, provide audit trails, and even present your team with templates to standardise the process simply. Transactions, such as checks, may hit your bank statement a few days after you make a deposit.

For law firms, for example, one key type of business reconciliation is three-way reconciliation for trust accounts. There are many types of reconciliation in accounting, with the best method for a situation generally depending on the type of account that you’re looking to reconcile. In the following post, we’ll cover the crucial types of reconciliation for legal professionals and delve into the fundamentals of three-way reconciliation accounting. Plus, we’ll offer useful best practices for reconciliation in accounting for lawyers to help make the process easier, more effective, and more efficient. Whilst there is no prerequisite for most businesses to reconcile regularly, doing so is a good habit as it will mean that business and financial information is up to date.

The vendor often does not automatically provide such statements at the end of each period so that businesses might request them. This allows businesses to ensure they can keep track of their payables correctly. Since accounts reconciliation is integral to ensuring proper management of the cash flow and other assets of the company, we need to look at when and how often should accounts reconciliation be carried out. Reconciling of each custodial account (i.e. P&I and T&I) means matching amounts paid and received on instruments held electronically with custodians to any internal statement. It is a process done regularly by banks to verify the accurate reporting of any operation with financial instruments.

The software system can produce reconciliation reports which offer an overview of what records match and the ones that don’t. However, there are generally best practices to follow as guidelines, which will help to standardise and execute processes such as account reconciliation. There are different types of reconciliations that can be performed on a personal or business basis.

After recording the journal entries for the company’s book adjustments, a bank reconciliation statement should be produced to reflect all the changes to cash balances for each month. This statement is used by auditors to perform the company’s year-end auditing. Here, you reconcile your accounts payable records with statements provided by vendors and suppliers to ensure that the amount you paid for a product or service matches the amount received by the vendor. Unlike bank statements, vendors don’t always send in their reports, so you may need to request them. Accounts receivable details may not match the general ledger if customer invoices and credits are accrued and not entered individually into the aged accounts receivable journal.

The cash account is reconciled to bank statements rather than a subsidiary journal (sub-ledger) for that account. Accounting software and ERP systems have built-in features and electronic forms to reconcile cash accounts with bank statements. Accountants compare the general ledger balance for accounts payable with underlying subsidiary journals. GAAP (generally accepted accounting principles) requires accrual accounting to record accounts payable and other liabilities in the correct accounting period. In book-to-bank reconciliation, also known as the “book statement method,” you match the transactions recorded in your organization’s books with those reported in the bank statement.

By performing reconciliations regularly, you’ll be able to spot fraud and thievery early on, which makes it easier to rectify and stop from becoming an even bigger issue. For example, a large company could have numerous multi step income statement format records, and managing these records across several tools might cause anyone to miss an essential detail. Unfortunately, most businesses face this challenge, regardless of the industry they are in or how big they are.

Make sure you go through each of them to have a comprehensive idea of how account reconciliation works. Want to learn more about how to easily manage trust reconciliation with Clio? Check out our guide to managing trust accounting with Clio, or book a demo to see how it works firsthand.