What does reconciliation mean and why is it so important?
The term “reconciliation” describes the process of reconciling data in different accounting areas. Account reconciliation, for example, involves comparing accounts with external data, for instance account statements. If an entry is missing or a payment entered twice, this must be corrected. This is because the aim is to reflect the actual balance in your accounts in the bookkeeping process. For you as a trader, this is also important because companies are required by law to produce a coherent annual financial statement. In addition to account reconciliation, there are also many other types of reconciliation.
- For example, cash reconciliation in a shop checks whether the real cash balance matches the calculated cash balance.
- Customer reconciliation, on the other hand, checks to see if there are any deviations between revenue and payments. Have all invoices been settled? Are the correct currency exchange rates entered for shops abroad? Have price reductions been taken into consideration?
- Transaction reconciliation in turn makes sure that your business’s actual transactions match the ones entered in your books. Have all transactions reported actually been processed?