Glossary · Accounting
Reconciliation
Also called Bank reconciliation, Account reconciliation
Reconciliation is checking that two records of the same money agree — your books and the bank, or your ledger and your customer’s — and fixing differences.
Bank reconciliation compares your accounting records with your bank statement and explains every difference: payments recorded but not yet cleared, receipts not yet applied, fees and errors. Customer reconciliation compares your sales ledger with the customer’s purchase ledger.
For collections, both matter. An unreconciled bank account hides payments that have actually arrived, so customers get reminders for invoices they have paid. An unreconciled customer account means you and the customer disagree on what is owed, which is a reason for their AP team to pay nothing until it is sorted.
Reconcile the bank often — daily with automatic bank feeds — and send statements of account to larger customers regularly, so mismatches surface while they are small.
Example
A firm’s ledger says a client owes €9,000; the client’s records say €6,500. Reconciling shows a €2,500 payment the firm hadn’t applied. Once it is, both sides agree and the reminder is cancelled.