Accounting Print Email

Definition of Reconciliation

This term is also synonymous with the term Bank Reconciliation Statement which refers to the balancing of two accounts for the sake of checking how much amount of actual money is spent. This is mainly done by matching the two accounts at the end of the accounting period. Well reconciliation usually refers to a process in which the two accounts are justified using a work breakdown structure number (WBS). This number is usually associated with a proper accounting structure. To each amount of money spent from the company, a WBS number is given and it determines the exact amount and the amount which is put in. Generally a mismatch is found at the end.

Types of Reconciliation

You might be well aware of the fact that there are five main types of accounts with which a business firm deals. They are assets, liability, equity, expense and revenue. The accounts which deal with the statements of income are the revenue and expense accounts and they get closed into an Equity account known as Retained earnings at the end of the year and there is no change in the fiscal balance. The fiscal balance returns to zero.

Reconciliation is mainly done to find out all the disagreements and disputes between the profits which are computed according to per cost accounts and financial accounts. These are known as the reconciliation of cost and financial accounts. There are a lot of records available for the costs incurred and the respective profits and losses made but you need to strictly adhere to the rules of financial accounting. There is a term called bank reconciliation which mainly means the disputes which are found between the balance sheet given by a particular bank and the balance sheet produced by the organization.

Such differences between that of the bank and the organization can happen naturally. It might happen that the cheques issued by the organization are not produced before the bank or the credit issued by the bank or a banking charge involved is not present in the cheque book of the organization. It might even happen due to an error from both the sides. 

Login to ReadyRatios


Have you forgotten your password?

Are you a new user?

Login As
You can log in if you are registered at one of these services: