What Is Reconciliation in Accounting?

Reconciliation is the process of comparing two sets of financial records—typically a company’s general ledger and the company’s bank statements—to ensure both are complete and consistent. Should reconciliation reveal discrepancies, they must be tracked down and reconciled. Businesses typically reconcile their books on a monthly, quarterly or annual basis. Though the more frequently they engage in reconciliation the better.

The Essence of Account Reconciliation

Businesses rely on the account reconciliation process to ensure the viability of their financial records and the integrity of their accounts, to detect fraud, and to ensure the quality of their accounting. That said, there is more than one method of account reconciliation.

Why Is Regular Account Reconciliation Important?

For a company to be able to make reliable forecasts, create accurate budgets and satisfy the needs of stakeholders, they must have reliable financial information. This is where reconciliation comes in.

But if you only engage in quarterly or even annual reconciliation, you make it easier for nefarious players to engage in undetected fraud and for systemic errors to create cash flow issues that undermine day-to-day business activities.

For those reasons, monthly reconciliation is recommended. If you do not have the accounting resources to dedicate to manual reconciliation every month, automated reconciliation solutions, like Trintech’s can save vast amounts of time, reduce errors and increase transparency.

The Role of Reconciliation for Businesses

Maintaining accurate financial records can help a business in a variety of important ways, including preventing fraud, ensuring you don’t pay more than your share of tax, helping to secure funding from investors, more accurate budgeting, and maintaining good relationships with suppliers.

When it comes to suppliers, late payments are a sure-fire way to erode trust and damage these key relationships. Frequent reconciliation enables you to always have an accurate account of your finances so you can pay invoices promptly and with a high degree of confidence. Automated reconciliation software can help ensure prompt payments which, in turn, solidifies your status as a reliable customer.

How to Perform Reconciliation in Accounting: Step-by-Step

At its heart, account reconciliation involves comparing information in the general ledger against monthly statements issued by external sources, most often banks. While the precise mechanics of the reconciliation process may vary from company to company, they all more or less follow the same template.

1. Gather the necessary records: This entails bringing together the most recent bank statement along with your company’s general ledger or books. These are the records you will be reconciling.
2. Compare deposit records: Compare the bank deposits noted in the ledger with those in the bank statement. All entries in the debit side of the bank column in the ledger should agree with the credit side of the bank statement and vice versa.
3. Adjust the bank statement: If there are deposits in transit, outstanding checks, or bank errors they must be accounted for. Adjust the bank balance to reflect these anomalies to harmonize the ledger with the bank statement. Bank errors usually take the form of omitting a deposit or entering the wrong deposit amount. You may need to work with the bank to reconcile these kinds of bank errors.
4. Account for interest and fees: Monthly bank charges, NSF check charges, overdraft fees and more all need to be accounted for and deducted from the cash account. Conversely, any interest earned since the last reconciliation must be added to the cash account.
5. Compare the adjusted balances: After completing these steps, your general ledger and bank statement should be in agreement. If they are not you will need to repeat the reconciliation process. Books that resist reconciliation may also indicate fraud.

What are Common Reasons for Reconciliation Discrepancies?

Discrepancies pop up all the time during the reconciliation process. The following are some of the most common reasons for reconciliation discrepancies.

Timing differences

Oftentimes a company will enter a deposit or payment into their ledger before said payment has cleared with the bank. This usually occurs with payments and deposits made near the end of the month.

For example, a check may have been received on June 30th and recorded in the cash account for June. However, it may not be processed by the bank for several days and will end up appearing on the July bank statement.

Human error

People on both the company and the bank side may make errors when manually entering information. Perhaps someone moved a decimal point by mistake, typed the wrong number or transposed digits. For the record: if the discrepancy is a multiple of 9 chances are good it is a transposition error.

In any month there usually won’t be more than 1 or 2 such mistakes, which is good because they can be difficult to track down.

Missing Transactions

Check printing fees, credit card fees and interest, electronic deposits and more can get lost in the transactional miasma. In many cases, your first awareness of them will come when you see them noted on the bank statement. Fortunately, they are usually easy to spot and correcting them simply entails entering the information into the company books.

Fraud

It is estimated that businesses lose up to 5% of their revenue each year to fraud. A staggering thought when you consider the trillions of dollars in play. Fraud may take many forms including, but not limited to:

• Cash payments that wound up in someone’s pocket instead of the cash drawer.
• Phony checks written to “vendors” that don’t actually exist.
• Theft of inventory or other assets.
• Funds electronically siphoned off into offshore bank accounts.

Automating the reconciliation process can greatly reduce instances of fraud, can help identify fraud faster and can create a clear record of everyone who made ledger entries as well as when and what they entered.

More to read: “7 Steps to Audit Your Organization’s Bank Reconciliation Statement,” which includes as easy checklist for an in-house bank audit.

Reconciliation in Accounting: Manual vs. Automated Processes

Let’s compare the benefits of automated account reconciliation processes versus risky manual processes.

1. Time & Efficiency

• Manual: Labor-intensive and time-consuming; staff spend the majority of their time matching transactions that already align.
• Automated: AI-driven systems instantly match the majority of entries, freeing up time for exception handling and strategic, insight-focused work.

2. Accuracy & Error Reduction

• Manual: Prone to human errors such as data entry mistakes, transpositions, and omissions, especially when using spreadsheets.
• Automated: Reduces manual entry, minimizes the risk of common errors, and continuously improves through machine learning.

3. Scalability

• Manual: Difficult to scale as transaction volume grows—teams often struggle to keep up during close cycles or as the business expands.
• Automated: Easily scales with business growth and transaction complexity, including multi-entity, multi-currency operations.

4. Fraud Detection & Internal Controls

• Manual: Limited visibility, with fragmented audit trails and delayed identification of suspicious activity.
• Automated: Enhanced security, full audit trails, and quicker fraud detection through pattern recognition and access logs.

5. Real-Time Visibility

• Manual: Reconciliations are typically retrospective, often lagging weeks behind actual transactions.
• Automated: Supports near real-time reconciliation, offering current financial visibility for better decision-making.

6. Regulatory Compliance

• Manual: Higher risk of non-compliance due to inconsistent documentation and version control issues.
• Automated: Built-in compliance features, user permissions, and documentation capabilities that support SOX and other regulations.

7. Cost Implications

• Manual: Ongoing resource cost, inefficiencies, and opportunity cost due to rework and prolonged close cycles.
• Automated: Higher upfront investment but significant long-term ROI through time savings, risk reduction, and process optimization.

What Does Automated Account Reconciliation Look Like?

How Can AI Be Used for Reconciliation in Accounting?

AI is rapidly transforming the reconciliation process from a tedious, manual task into a streamlined, intelligent workflow that dramatically improves accuracy, speed, and control. As the volume and complexity of financial transactions continue to grow, leveraging artificial intelligence is no longer a luxury—it’s becoming a necessity.

1. Automating Transaction Matching at Scale

Traditionally, more than 90% of reconciliation effort is spent on entries that already match. AI eliminates this inefficiency by instantly matching high volumes of entries across multiple systems—regardless of format or frequency. This frees accounting teams to focus on investigating exceptions rather than performing rote tasks.

2. Accelerating Exception Management

Rather than having accountants sift through spreadsheets looking for discrepancies, AI algorithms flag unmatched entries and highlight anomalies for rapid resolution. These intelligent systems continuously learn from previous resolutions, improving their accuracy over time and reducing the time needed to resolve discrepancies.

3. Learning Business Rules and Adapting Over Time

AI doesn’t just apply static rules—it learns from historical data and adapts to changing reconciliation patterns. This means recurring adjustments, policy changes, or evolving business logic don’t require manual reprogramming. The system refines its logic automatically to improve performance and precision.

4. Enabling Real-Time Reconciliation

The holy grail of modern accounting—real-time reconciliation, AKA continuous close—is becoming a reality with AI. Rather than waiting until month-end, AI-powered systems can reconcile transactions continuously, giving finance teams up-to-date visibility into cash positions, liabilities, and variances.

Conclusion

Regular, accurate account reconciliation is essential to strengthen financial integrity, uncover fraud, support regulatory compliance, and build trust with stakeholders and investors.

Yet as businesses grow and transactions multiply, manual reconciliation becomes an operational bottleneck. That’s why leading finance teams are turning to AI-powered and cloud-based automation solutions to transform their reconciliation process.

Trintech’s reconciliation and financial close solutions empower mid-size to enterprise organizations to:

• Streamline and automate repetitive reconciliation tasks
• Improve accuracy and reduce the risk of human error
• Gain real-time visibility into financials
• Strengthen internal controls and compliance
• Free accounting staff for high-value strategic work

Whether you’re looking to modernize your financial close, reduce audit risk, or eliminate inefficiencies, Trintech helps finance teams close with confidence.

Learn more about how Trintech’s solutions can elevate your reconciliation process.
Explore our Financial Reconciliation Software, or get in touch with a solution expert today.

Learn more in our Finance & Accounting Glossary