Accounts Reconciliation

Account Reconciliation

Account reconciliations are tasks carried out by accountants to verify that the general ledger account balance is complete and accurate, usually at the conclusion of an accounting period. Account reconciliations typically compare an account’s general ledger balance to external systems, third-party data, or other supporting records to verify the balance reported in the general ledger.

Account reconciliations are a crucial step in ensuring the accuracy and completeness of the financial statements. Companies must specifically reconcile all balance sheet accounts that might have a material or significant misstatement. By doing this, organizations are able to quickly identify and post any adjustments that are required to the general ledger.

The reconciliation procedure also plays a significant role in the internal control environment. Public companies must submit an evaluation of their internal controls over financial reporting along with their annual report.

Risk is introduced because many organizations are unable to complete the reconciliation process in a timely manner. A lower risk of misstatement and a more preventive control environment are benefits for businesses that adopt a more automated, Continuous Accounting approach.

Types of Reconciliation

Personal Reconciliation

Many people regularly compare their written checks, debit card receipts, and credit card receipts with their bank and credit card statements to reconcile their cheque books and credit card accounts. It is possible to identify whether money is being fraudulently withheld when performing this kind of account reconciliation.

Individuals can check that financial institutions (FI) have not made any errors in their accounts and get a general idea of their spending by reconciling their accounts. The transactions on the statement should correspond with the account holder’s records when an account is reconciled. It is crucial to take into account any pending deposits or unpaid checks for a checking account.

Business Reconciliation

To avoid negative audit findings, check for fraud, and prevent balance sheet errors, businesses must reconcile their accounts. Companies typically reconcile their balance sheets once a month, following the closing of their books for the previous month. To ensure that transactions were properly recorded in the appropriate general ledger account, this type of account reconciliation entails checking all balance sheet accounts. In the event that journal entries were booked improperly, adjustments may be required.

To make sure that cash inflows and outflows between the income statement, balance sheet, and cash flow statement agree, some reconciliations are required. According to GAAP, even if the cash flow statement is presented directly, the company is still required to reconcile the cash flows to the income statement and balance sheet.

If the indirect method is employed, the reconciliation of the three financial statements is already included in the cash flow from operations section. Other reconciliations convert non-GAAP measures into their equivalents that have been approved by GAAP, such as earnings before interest, taxes, depreciation, and amortisation (EBITDA).


Reconciliation Process

The process of account reconciliation is typically completed following the end of a financial period:

  • Accountants check the accuracy and completeness of the balances listed for each account in the general ledger of accounts.
  • This entails comparing the balance of the general ledger account with external systems, data from third parties, or other supporting records, like bank and credit card statements.
  • When discrepancies are discovered, accountants look into them and make the necessary corrections.
  • Making journal entries to fix balance mistakes may be a part of this.
  • For auditing purposes, all information discovered, analyses conducted, and actions taken are stored.

A company cannot issue financial statements or certify the accuracy of its financial data until the account reconciliation process has been completed.

What Does Reconciliation Mean in Accounting?

Reconciliation is an accounting process that seeks to verify the accuracy and agreement of the figures in two sets of records, frequently internal and external.

Consolidating your accounts is crucial because it aids in finding any errors, inconsistencies, or fraud in your accounting records that could negatively affect your company’s financial situation. An effective business strategy that can contribute to a company’s success is reconciliation.

What is Balance Sheet Reconciliation?

The balance sheet reconciliation process entails comparing the final balances of all ledger and transactional entries and accounts. Whether it is recorded and properly classified, it is a component of the balance sheet items for a specific financial year and makes up for the balances in the balance sheet appropriately. Before closing its books at the end of the financial cycle, the company performs this final and crucial task to guarantee the accuracy of its financial statements.

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