Account reconciliation is matching your books with reality. You compare your internal accounting records with bank statements, vendor invoices, or other external documents to make sure every transaction is recorded correctly and nothing is missing.
The process involves checking each transaction in your records against the corresponding entry in the bank statement. Discrepancies could indicate errors (wrong amounts entered), timing differences (checks written but not yet cashed), unauthorized transactions (fraud), or bank fees you have not recorded.
For businesses, account reconciliation is not optional — it is essential. Companies reconcile bank accounts, credit card statements, accounts receivable, accounts payable, and intercompany accounts monthly. Modern accounting software (QuickBooks, Xero, SAP) automates much of this process, flagging discrepancies for human review.