Reconciliation
Candlefocus EditorIn business, reconciliation is essential to helping to ensure accuracy, integrity, and completeness of financial records. Companies use the process or its derivatives to guard against accounting fraud or mistakes by double-checking their books. Reconciliation is done on a regular basis, usually at the end of each accounting period, but sometimes more frequently. The process can help detect clerical errors, inconsistencies in reporting practices, fraud, and discrepancies between two separate sets of information.
Simply stated, reconciliation is when two sets of records are compared in order to detect inconsistencies. The main objective is to make sure the information contained in both sets of records, or in multiple transactions, is accurate and in balance. Reconciliation, at its core, allows companies and individuals to detect errors, miscalculations, or fraud in their financial accounts.
When reconciling business accounts such as those contained on a company's balance sheet, the process involves bolting together information from multiple accounts. This involves matching the individual accounts, such as cash and inventory, from one financial period to the next. Any discrepancies between the listed accounts must be identified and explained.
For individuals, the use of reconciliation is important for detecting any fraudulent or unauthorized activity on their banking and credit accounts. When reconciling one's accounts, for example, any suspicious activity or charges that do not match those that typically appear on a statement must be reported to the respective financial institution and the proper authorities.
In conclusion, reconciliation is a critical process that helps to ensure the accuracy of financial records. Companies use it to review balance sheet errors, prevent fraud, and to reconcile the general ledger. Individuals must also double check their financial accounts to prevent any abuses or unauthorized activity. The goal in any reconciliation process is to make sure that the information contained in both sets of records is accurate and in balance.