Master Account Reconciliation: Understanding the Meaning, Types and Process

Have you ever been in a situation where bank balance does not match with account balance? Even if the mismatch is of only a few thousand rupees it could throw you into panic mode. On a daily basis, countless businesses face this problem and the solution is quite simple i.e account reconciliation. 

In this blog we will discuss what account reconciliation is, its types and how to do it in step-by-step procedure. 

Reconciliation Meaning in Accounting

Account reconciliation is the process of comparing a company’s accounting records with external data sources, e.g. bank statements and credit card statements. The purpose of reconciliation is to ensure that recorded data is accurate and up to date. Maintaining the consistency of accounting data is important because it is vital for making an informed decision. 

In general practice, businesses reconcile their balance sheet at the end of the financial year but it should happen on a regular basis (say every month). It enables you to identify anomalies and adjust the entries prior to making any financial statements or a strategic decision. 

Types of Reconciliation in Accounting

There are numerous account reconciliations in accounting, each of them are employed based on the data to reconcile. However, irrespective of their type, the main objective is to find discrepancies in the given data. Understanding the types of reconciliation in accounting is essential for an accountant as well as a business owner in maintaining financial records accurate. Following are the various types of accounting reconciliation. 

1. Bank account reconciliation

In bank account reconciliation, a company’s bank statements are reconciled with its accounting records to match all transactions and ensure that the data is accurately recorded. 

2. Inventory reconciliation

Under this reconciliation process, physical inventories are reconciled with the records maintained in accounting books. 

3. Payroll reconciliation

Payroll records are reconciled with bank statements and tax filings to determine that the data recorded in the accounting records are accurate, additionally to verify correct tax filing. 

4. Credit card reconciliation

Reconciling the company’s credit card statements with its data recorded in accounting books to ensure that all transactions are recorded accurately and there are no discrepancies. If discrepancies are found, they are resolved promptly. 

5. Fixed asset reconciliation

The fixed asset reconciliation process involves the physical verification of the assets owned by a company with its corresponding accounting records. The process is done to ensure that valuation of assets is done appropriately. 

6. Expense reconciliation

The process involves reconciliation of expense reports and receipts with its corresponding accounting records to determine whether expenses are accurately recorded or not, in the books of accounts. This ensures accurate financial reporting and supports effective expense tracking.

How to do Account Reconciliation

The process of account reconciliation involves comparing the entries in general ledger accounts with their corresponding data sets, such as bank statements, invoices, receipts, etc. Here’s the step-by-step process to do accounting reconciliation: 

Gather all relevant data: Get all the financial records in one place whose reconciliation is to be done. 

Identify discrepancies

Now, identify the discrepancies by reconciling the data in both entries. You can either do this process manually or with the help of software. Look out for duplicated and missing entries, you may find errors in amount as well. 

(Pro tip – Get your Bank Reconciliation done in a few minutes with Munim Accounting and Billing software)  

Investigate discrepancies

When the discrepancies are found, the next step is to investigate the root cause behind the same. 

Adjusting the Entries

Once the proper investigation is done and necessary changes are made, update the entries in the accounting books. 

Document the Changes

When you make adjustments to the financial records, ensure you make a note of the same. This will be required during auditing. 

Repeat the Process at Regular Intervals

Account reconciliation is the process that you should do on a regular basis to ensure that your financial records are accurate and up to date. The frequency of account reconciliation depends on the volume of transactions and the size of your company. 

Over to You 

This is all you need to know about account reconciliation. We hope after reading this blog you got to know how to do account reconciliation. If you are struggling to do so, sign up with our accounting software and reconcile your bank statements with accounting records in less than a minute. 

Frequently Asked Questions 

1. What is a reconciliation statement in cost accounting? 

A reconciliation statement is a formal document that is used to compare and reconcile financials, particularly profit and loss reported by cost accounting with the profit and loss reported by financial accounting. The statement highlights the discrepancies between the two sets of accounting data so as to make necessary adjustments. 

2. What is a vendor reconciliation account? 

A vendor reconciliation account is a general ledger account, works as a control account. It makes sure that the balance in the subsidiary ledger (e.g vendor records) are accurately reflected in the general ledger. 

3. What is a reconciliation account in SAP? 

In SAP, a reconciliation account refers to the General Ledger (GL) account and works as a Control Account for sub-ledgers such as Fixed Assets, Accounts Payable, or Accounts Receivable. 

4. What is bank account reconciliation​? 

Bank Reconciliation (BR) is the process of tallying a company’s accounts of cash transactions with the corresponding bank statements. The process is done to determine that records are accurate. 

5. How to do account reconciliation? 

Account reconciliation is the process of reconciling internal accounting records with external financial statements, to determine whether they match or not. If the data does not match, that means there is a discrepancy. 

Following are the steps to do accounting reconciliation: 

• Collecting the relevant data
• Properly recording the data
• Comparing the data with external statements
• Documenting the reconciliation
• Taking the necessary steps to adjust
• Verification of the data

6. What is a memorandum reconciliation account? ​

A Memorandum Reconciliation Account is a term used to describe a temporary account used to reconcile discrepancies between the two given sets of accounting records. In this account, adjustments are recorded without disturbing the original accounting data.