Reconciliation

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What is 'Reconciliation'

Reconciliation is an accounting process used to compare two sets of records to ensure the figures are in agreement and are accurate. Reconciliation is the key process used to determine whether the money leaving an account matches the amount spent, ensuring the two values are balanced at the end of the recording period.

BREAKING DOWN 'Reconciliation'

At the end of every month, it is a good idea to reconcile your checkbook and credit card accounts by comparing your check copies, debit card receipts and credit card receipts with your bank and credit card statements. This type of account reconciliation makes it possible to determine whether money is being fraudulently withdrawn from an account, ensures that financial institutions have not made any errors impacting your accounts, gives you an overall picture of your spending, helps you assess whether you’re overspending and shows whether you’re spending too much on banking and credit card fees. When an account is reconciled, the statement’s transactions and ending balance should match the account holder’s records. For a checking account, it is also important to know how any pending deposits or checks outstanding affect the statement balance—that is, how much money you really have available to spend.

Account reconciliation is important not just for individuals and households, but also for businesses. Businesses must reconcile their accounts to check for fraud and to prevent balance sheet errors. Businesses typically use accounting software to help them perform account reconciliations. For publicly traded companies in particular, mistakes can have serious ramifications. An auditor who reviews the company’s financial statements in accordance with federal regulations such as Sarbanes Oxley could find a material error, which the company would have to publicly disclose as a failure of controls, a material misstatement and/or a material weakness. And without accurate financial information, a company cannot make well-informed decisions.

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RELATED FAQS
  1. How do I reconcile an account?

    Learn about the process of account reconciliation, including some of the ways that documented proof of financial activity ... Read Answer >>
  2. Why is reconciliation important in accounting?

    Learn about accounting reconciliation and its importance for individuals and businesses to help prevent fraudulent activity ... Read Answer >>
  3. How often should a small business owner go through a bank reconciliation process?

    Learn about the bank reconciliation process, its purpose and how often it is recommended that small businesses perform a ... Read Answer >>
  4. How did Sarbanes Oxley (SOX) affect the rules and regulations for account reconciliation?

    Read about the various regulations and impositions of the Sarbanes-Oxley Act of 2002 on account reconciliation for publicly ... Read Answer >>
  5. Where did the concept of reconciliation in accounting come from?

    Learn about the history of account reconciliation, double-entry bookkeeping and the rise of modern accounting practices in ... Read Answer >>
  6. How is reconciliation treated under generally accepted accounting principles (GAAP)?

    Read about some of the different treatments of reconciliation under GAAP, particularly with respect to IFRS accounting or ... Read Answer >>
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