Account Reconciliation: Definition and Types

What is account reconciliation?

Account reconciliation is the process of checking that the balance and transactions of an account in your books match another source that backs them up: the bank statement, a supplier's statement of account, the balance a customer acknowledges or the books of another company in the group. When they don't match, the reconciliation isn't finished until every difference has an explanation and, where needed, a journal entry that corrects it.

It is a basic control in the month-end close. An unreconciled account can hide misapplied collections, open invoices nobody sees, unrecorded fees or wrong amounts.

The account reconciliation process

The process is much the same for almost every type:

1. Get both sources for the same period, for example the general ledger for the account and the bank statement.
2. Match the items that agree on amount, date and reference.
3. Review the unmatched items: timing differences (a payment issued that the bank hasn't cleared yet), errors, or transactions missing from one of the two sources.
4. Post the adjustments needed and document the reconciliation for audit.

Matching is the part that takes the most time, especially when references are unclear or one payment covers several invoices.

Types of account reconciliation

• Bank reconciliation: the cash account balance against the bank's statement. It is the most common type.
• Supplier reconciliation: what you owe a supplier according to your books against their statement of account. It helps catch invoices not received, pending credit notes or duplicate payments.
• Customer reconciliation: the invoices issued to each customer and the collections received, so you know what is really outstanding.
• Intercompany reconciliation: the balances between companies in the same group, which must agree before consolidation.
• Balance sheet reconciliation: the periodic review of each balance sheet account against its support (inventory, fixed assets, provisions).

A simple example

The bank statement shows a deposit of €1,240 with the description "TRANSF PROVEEDOR". The books show two open invoices for that customer, for €740 and €500. Reconciling means recognizing that the deposit pays both invoices, marking them as collected and recording the match. If the amount were €1,235, you would need to find out whether the difference is a bank fee or a partial payment.

Account reconciliation at DPI

For a public-sector supplier that was manually reviewing more than 7,000 invoices a year, we built an automated bank reconciliation system in 8 weeks. It loads bank statements in Norma 43 format, pulls open invoices from the ERP and matches payments to invoices with three independent methods running in parallel: invoice number, amounts and client fingerprints. The accountant validates the suggestions, and approved matches go back to the ERP.