Plain definition
An account reconciliation compares a general-ledger balance with independent evidence or a detailed subledger, then explains and resolves the difference. For cash, the evidence is usually the bank statement; for receivables, it may be a customer-by-customer ledger and subsequent cash receipts; for payroll, approved registers, tax filings, and payment records. A completed reconciliation does more than carry a signature: it shows the balance, supporting total, reconciling items, dates, evidence, and review.
Its purpose is to obtain evidence for the reported balance before management relies on it, not to make the ledger match by posting an unexplained plug.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
At 31 May, the cash ledger shows and the bank statement shows . A deposit is already in the books but will appear on the next bank statement. The bank has also deducted a fee that the books have not yet recorded.
Adding the deposit to the bank balance gives . Deducting the fee from the book balance gives the same amount. Finance posts the fee, retains the deposit evidence, and confirms the deposit clears in June. It does not post the deposit a second time.
| Bank statement balance | |
|---|---|
| Deposit not yet shown by the bank | |
| Adjusted cash balance |
| Unadjusted ledger balance | |
|---|---|
| Unrecorded bank fee | |
| Adjusted cash balance |
The reconciliation is only as good as the evidence and follow-up. A deposit in transit that remains outstanding for weeks may be an error or fraud signal, not a permanent explanation.
Why it matters
An unreconciled cash or receivable balance can make liquidity appear stronger than it is. The same discipline finds duplicate payments, stale credits, missing entries, and system-interface failures before they become part of a management decision or financial statement.
Practical consequence
Define the evidence, preparer, reviewer, frequency, and aging rule for every material account. Require each difference to have an amount, date, cause, owner, and planned clearing action. Review old reconciling items separately from new timing items, and escalate items that cannot be evidenced or cleared within the approved period. The supporting record will differ by account; do not force every balance into a bank-style reconciliation.