A second approach is called the analytic method. The documentation approach to account reconciliation is the most helpful for identifying and evaluating specific reconciling items.Bank reconciliation is the most common type of account reconciliation, but all GL accounts can benefit, especially assets, liabilities and equity accounts.Account reconciliation is a primary internal control that maintains the accuracy of a company's general ledger (GL) and detects fraud.The process may uncover errors, omissions or duplications in the GL, any of which would have to be investigated and corrected before reconciliation can occur. Account reconciliation confirms the accuracy of each GL account - not just cash accounts, as commonly thought of - by comparing the details to data from another source, such as a bank statement. As part of the bookkeeping process, every business transaction is posted to two or more GL accounts using corresponding debits and credits that indicate value coming into or going out of the business.
What Is Account Reconciliation?Ī company's books are comprised of seven types of GL accounts that track its financial activity: assets, liabilities, equity, revenue, expenses, gains and losses. Account reconciliation of all GL accounts is a best practice that businesses should have in place - and it's even better when the process is automated. Bank reconciliations tend to be the first kind of account reconciliation that comes to mind given the implications for cash flow, but account reconciliation applies to other accounts as well, such as inventory, accounts receivable and intercompany accounts, to name a few. It's also an important outcome, since GL balances flow into a company's financial statements, which are used for internal and external decision-making. The practice of comparing a balance in a company's general ledger (GL) to the balance on an independent statement and investigating any differences helps reassure accountants and business executives that their companies' books are up to date, accurate and complete. East, Nordics and Other Regions (opens in new tab)Īccount reconciliation is a key step in the financial close process.
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