Keeping accurate financial records is essential for any business, and one key part of this process is reconciling accounts receivable (AR). Accounts receivable represents the money customers owe your company, and reconciling AR ensures the balances in your books match what customers have actually paid. Without it, you risk misstating revenue, losing track of overdue invoices, or running into audit issues. 

In this guide, we’ll explain what accounts receivable reconciliation is, why it matters, and walk through how to do it step by step. 

What Is Accounts Receivable Reconciliation? 

Accounts receivable reconciliation is the process of comparing the balance in your general ledger (GL) with the detailed records in your accounts receivable subledger or customer accounts. 

Put simply, it answers the question: Do the amounts my accounting system says customers owe match the actual invoices, payments, and credits on file? 

Documents used for accounts receivable reconciliation include:  

• Customer invoices 

• Credit memos 

• Cash receipts or deposits 

• AR aging reports 

When differences appear, adjustments are made so both records agree. 

Accounts Receivable vs. Accounts Payable: Key Differences 

It’s easy to confuse AR with AP, but they are opposites: 

• Accounts receivable (AR): Money owed to your business by customers. 

• Accounts payable (AP): Money your business owes to suppliers or vendors. 

Both reconciliations are critical, but AR reconciliation focuses on making sure your revenue and customer payments are recorded accurately. 

Why Is Accounts Receivable Reconciliation Important? 

Reconciling AR isn’t just a bookkeeping exercise—it directly impacts your company’s financial health. Here’s why it matters: 

• Accurate revenue reporting: Ensures your income statements reflect reality. 

• Cash flow management: Helps you track overdue balances and follow up with customers. 

• Fraud prevention: Detects unauthorized write-offs or unusual transactions. 

• Audit readiness: Creates a clear audit trail and strengthens compliance. 

• Decision-making: Reliable AR balances give leaders a clear picture of available cash. 

Is Accounts Receivable an Asset? 

Yes, accounts receivable is a current asset on the balance sheet because it represents money customers are expected to pay within a year. 

However, not all receivables may be collected. That’s why reconciliation and proper adjustments (like recording bad debts) are essential—overstating AR can make your company look healthier than it really is. In some cases, a company may issue notes receivable to customers who are unable to pay within the originally agreed-upon timeframe.  

How to Reconcile Accounts Receivable (Step-by-Step) 

1. Gather your documents. These documents include:

   •  General ledger AR account balance 
   • AR subledger or aging report 
   • Customer statements and invoices 
   • Bank deposit slips or payment records 

2. Compare balances. Check whether the ending AR balance in the general ledger matches the total in the subledger. 

3. Investigate differences. Look for unapplied cash, timing issues (payments in transit), misapplied payments, or missing invoices. 

4. Record adjustments. Post journal entries for write-offs, corrections, or reclassifications. 

5. Review and approve. Ensure discrepancies are resolved and approvals are documented. 

6. Document findings. Keep records of the reconciliation for audits and future reference. 

Keep reading for an example of reconciling accounts receivable that helps paint a clearer picture of what the process really looks like.  

Common Errors and Oversights in AR Reconciliation 

Even experienced accountants run into common issues, including: 

• Duplicate invoices or payments 

• Payments applied to the wrong customer account 

• Unapplied cash not matched to invoices 

• Bad debts not written off in time 

• Manual data entry mistakes 

Account reconciliation requires a keen eye for detail, so being aware of these helps you spot and prevent them quickly. 

Best Practices for Accounts Receivable Reconciliation 

• Reconcile monthly: More frequent reconciliations mean fewer surprises. 

• Use AR aging reports: Identify overdue accounts and prioritize collection. 

• Segregate duties: Separate cash application from reconciliation for better internal controls. 

• Resolve discrepancies quickly: Don’t carry forward unexplained differences. 

• Keep strong documentation: Maintain an audit trail for transparency. 

How Financial Close Software Makes AR Reconciliation Easier 

Manual reconciliation can be time-consuming, especially for businesses with high transaction volumes. Modern financial close software helps by: 

• Automatically matching invoices to payments 

• Detecting duplicate entries or unapplied cash 

• Offering real-time dashboards for overdue accounts 

• Integrating with ERP or CRM systems to reduce manual or duplicate work 

• Providing a stronger audit trail 

Financial close software not only speeds up the month-end close but it also improves accuracy and reduces risk. 

Example: Reconciling Accounts Receivable 

Step-by-step instructions are helpful but a detailed example with numbers does a better job of explaining the process. Let’s say a company’s general ledger (GL) shows an ending AR balance of $50,000 at the end of the month. You now compare that balance to your accounts receivable subledger (customer-level detail). 

Here’s what you find: 

Customer	Invoice(s) Outstanding	Payments Received	Balance Due
Customer A	$10,000	$5,000	$5,000
Customer B	$8,000	$8,000	$0
Customer C	$12,000	$7,000	$5,000
Customer D	$20,000	$0	$20,000
Customer E	$20,000	$0	$20,000
Total	$70,000	$20,000	$50,000

At first glance, the subledger total ($50,000) matches the general ledger balance ($50,000). But during the review, you notice: 

• Customer C’s $5,000 payment was received on the last day of the month but hasn’t been deposited yet. This is a timing difference and common reason for accounting discrepancies. 

• Customer E’s $20,000 balance is more than 120 days past due and may need to be written off as bad debt if collection isn’t likely. 

Adjustments made: 

1. Record a deposit for Customer C’s $5,000 payment once it clears. 

2. Discuss with management whether to record an allowance for doubtful accounts or a write-off for Customer E. 

Once adjustments are posted, both the GL and subledger remain balanced at $50,000, but your reconciliation provides context on cash timing and credit risk. The more detailed notes you keep on these numbers, the easier your future reconciliations will be each month and the more audit-ready you will be. And if a different account performs these tasks from month to month, the easier it will be for anyone to understand your books.  

This example shows how reconciliation is more than “matching numbers” — it helps identify overdue accounts, track cash timing, and ensure the company’s financial statements are accurate. 

FAQs About Accounts Receivable Reconciliation 

Is accounts receivable reconciliation part of the month-end close? 
Yes, AR reconciliation is a standard step in the monthly close process to ensure accurate reporting. 

Who is responsible for reconciling AR? 
Typically, the accounting or finance team handles AR reconciliation, with oversight from managers or controllers. 

What’s the difference between AR reconciliation and cash application? 
Cash application is the process of applying customer payments to invoices. Reconciliation confirms that all cash applications and invoices line up with the general ledger. 

Conclusion 

Accounts receivable reconciliation is more than just balancing the books—it’s a key control that ensures accurate financial reporting, healthy cash flow, and audit readiness. By following a structured process and leveraging technology where possible, businesses can reduce errors, save time, and gain greater confidence in their financial results. 

Check out our Finance & Accounting Glossary for answers to more of your questions relating to accounting processes and best practices.

 

Written by: Lindsay Rose