What is a reconciliation statement?

A reconciliation statement is a document that begins with a company's own record of an account balance, adds and subtracts reconciling items in a set of additional columns, and then uses these adjustments to arrive at the record of the same account held by a third party. The intent of the reconciliation statement is to provide an independent verification of the veracity of the balance in the company account, as well as to clarify the differences between the two versions of the account.

The differences between the two accounts are detailed in the reconciliation statement, which makes it easier to determine which of the reconciling items may be invalid and in need of adjustment. Reconciliation statements are an extremely useful tool for both internal and external auditors.

Reconciliation statements are commonly constructed in the following situations:

• Bank accounts. The bank reconciliation compares the balances between a company's version of its cash balance and the bank's version, typically with many reconciling items.
• Debt accounts. The debt reconciliation compares the debt amounts outstanding according to the company and its lender.
• Accounts receivable. The receivables reconciliation is usually constructed on an informal basis for individual customers, and compares their version of outstanding receivable balances to the company's version.
• Accounts payable. The payables reconciliation is also usually constructed on an informal basis by individual supplier, and compares their version of outstanding payable balances to the company's version.

Related Topics

How do I reconcile an account?
What is a suspense account?
What is an account?
What is the normal balance for an account?