What Is Financial Reconciliation?

By Staff WriterLast Updated Apr 17, 2020 10:29:34 AM ET

Financial reconciliation is the process of analyzing information in an account statement by comparing it to source documents in order to ensure the information is accurate and valid. Reconciliation ensures that the money withdrawn from an account is equivalent to the money spent as evidenced by supporting documents.

Financial reconciliation is typically done at the end of an accounting period. The reconciliation process must be fully documented so that an external auditor easily can assess the entire process. Publicly traded companies whose accounting systems are found with material errors face serious consequences under the Sarbanes-Oxley Act. Such companies must publicly disclose any material errors detected, then promptly investigate and correct such errors.

An individual should do a reconciliation at the end of the month upon receipt of bank and credit card statements. A person should compare copies of checks with the transactions on the bank statement as well as credit card and debit card receipts to ensure that all transactions are accurately impacted. Account reconciliation helps an individual spot any errors on the statements. An individual can assess personal spending habits through the reconciliation process and take steps to correct any overspending habits. Reconciliation also helps an individual plan for the cash balance in a checking account that has pending deposits and outstanding checks.