Accounting reconciliation is the process of comparing two sets of financial records, such as bank statements and ledger entries, to confirm that they match and to identify any discrepancies. It plays a fundamental role in ensuring that financial statements are reliable, detecting errors, preventing fraud, and maintaining compliance with regulatory requirements. Businesses that prioritise effective reconciliation practices put themselves in a strong position to make informed decisions, mitigate risks, and maintain the financial health necessary for long-term success.

According to a survey conducted by the Association of Certified Fraud Examiners, financial statement fraud constituted 5% of all reported fraud cases in 2024. This highlights the significance of accurate accounting reconciliation in preventing fraudulent activities within an organisation. By reconciling financial records (e.g., bank statements, invoices, receipts), businesses can identify discrepancies and irregularities and protect themselves against potential fraud.

Below, we'll discuss best practices and strategies that organisations can use to simplify their reconciliation processes, minimise errors, and establish a solid foundation for financial management.

What's in this article?

• What is reconciliation in accounting?
  
• Types of accounting reconciliation
  
• How to do a bank reconciliation
  
• Why accounting reconciliation matters for businesses
  
• Accounting reconciliation best practices
  
• Accounting reconciliation with Stripe
  
• How Stripe Revenue Recognition can help
  

What is reconciliation in accounting?

In accounting, reconciliation refers to the process of comparing two sets of records or financial information, such as bank statements, general ledger (GL) accounts, and other relevant records, to ensure their accuracy and consistency. The primary objective is to identify and resolve any discrepancies between the two sets of records. This helps preserve the integrity of financial statements and identify errors or fraudulent activities.

Account reconciliation isn't the same as closing the books, which is the administrative process of finalising, adjusting, or locking a previous financial period. However, account reconciliation is an important part of closing the books.

Types of accounting reconciliation

Accounting reconciliation involves comparing and verifying financial transactions and balances to identify and resolve discrepancies. Here are the different types of accounting reconciliation.

These different types of reconciliation play an important role in maintaining accurate financial records, detecting errors and fraud, and ensuring the reliability of the accounting system. They give organisations a clear, accurate picture of their financial positions, which enables them to make more informed business decisions.

How to do a bank reconciliation

Performing a bank reconciliation involves systematically comparing your internal financial records against your official bank statement to verify that every penny is accounted for. Below are the general steps to completing a bank reconciliation.

Gather your records

Before you start, pull all relevant source documents for the accounting period:

• The official bank statement that shows starting balance, all cleared transactions, and ending balance

• The company cash ledger, cash book, or GL cash account report

• The previous month's bank reconciliation report (to check for previously outstanding cheques or deposits)

• Supporting documentation, including deposit slips, payment processor settlement reports, sales receipts, and vendor invoices

Match transactions line by line

Compare the entries on your bank statement against the entries in your GL:

• Match deposits and credits: Cross-reference customer payments, credit card batch settlements, and direct deposits recorded in your books against the credits on your bank statement. Check off matched items.

• Match withdrawals and debits: Cross-reference issued cheques, vendor payments, wire transfers, and automated recurring debits against the withdrawals on the statement.

Identify discrepancies and unmatched items

Isolate any items that appear on one record but not the other. Discrepancies typically fall into one of four categories:

• Timing differences: Deposits recorded in your books that haven't cleared the bank yet (deposits in transit) or cheques you've issued that the payee hasn't deposited yet (outstanding cheques)

• Bank-initiated transactions: Items on the bank statement not yet recorded in your GL, such as monthly service fees, payment processing charges, wire transfer fees, interest earned, and returned or not sufficient funds (NSF) cheques

• Data entry errors: Transposition errors (e.g., recording "US$450" as "US$540"), double-entry postings, or incorrect amounts keyed into your accounting software

• Bank errors or unauthorised charges: Incorrect bank fees, duplicate charges, or potentially fraudulent withdrawals that require reporting to the bank

Investigate and adjust your records

Resolve the identified discrepancies:

• Post adjusting journal entries: Add unrecorded bank transactions (interest earned, bank service fees, and chargeback deductions) directly to your GL.

• Correct bookkeeping errors: Update any internal entries that have incorrect dates, amounts, or account mappings.

• Flag external errors: Contact the financial institution immediately to report any unauthorised transactions or bank-side errors.

Confirm the balances match

Calculate the adjusted balances for both the bank statement and your internal books. The reconciliation is complete only when the adjusted bank balance equals the adjusted book balance:

Adjusted Bank Balance = Ending Bank Balance + Deposits in Transit - Outstanding Cheques ± Bank Errors

Adjusted Book Balance = Ending Book Balance + Interest Earned - Bank Service Fees - NSF Cheques ± Book Errors

Note that, in both steps, you'll need to add or subtract any errors depending on whether an internal or bank-side error understated or overstated the respective balance.

Document and sign off

• Generate a formal bank reconciliation statement: The statement should detail the starting balance, all timing adjustments, cleared items, and the reconciled ending balance.

• Archive the reconciliation report: Store the report alongside bank statements and supporting schedules for tax preparation and internal or external audit trails.

• Review and sign off: Have the reconciliation reviewed and signed off by an accounting manager or controller to maintain segregation of duties and strong internal financial controls.

Why accounting reconciliation matters for businesses

Here's why accounting reconciliation is important for businesses.

Accounting reconciliation best practices

By following these accounting reconciliation best practices, businesses can increase the accuracy of financial records, strengthen internal controls, detect and prevent fraud, and maintain compliance with regulatory requirements. These practices contribute to reliable financial reporting, which is integral to almost every aspect of operating and growing a business.

Accounting reconciliation best practices for businesses include the following:

• Regular reconciliation: Conduct reconciliations on a regular basis. Bank reconciliations are typically completed daily or weekly for high-volume operations, while balance sheet reconciliation typically follows a monthly cadence. Prompt, consistent reconciliation means that a business can identify and resolve discrepancies quickly, before they cause problems later.

• Documentation and recordkeeping: Maintain detailed documentation of the reconciliation process, including bank statements, invoices, receipts, and other relevant records. Proper documentation of the reconciliation process facilitates future audits or reviews and helps identify and resolve discrepancies.

• Segregation of duties: Implement segregation of duties to assure that different individuals are responsible for different aspects of the process, such as recording, reconciling, and approving financial transactions. This separation guarantees that multiple sets of eyes review the financial information at different points in the reconciliation process, helping prevent errors and fraud.

• Clear reconciliation procedures: Establish standardised reconciliation procedures, clearly defining appropriate steps, roles and responsibilities of individuals, and specific deadlines. Clear procedures promote consistency, minimise errors, and ensure that the reconciliation process is conducted in an organised manner.

• Reconciliation automation: Adopt modern accounting platforms and AI-driven reconciliation tools to automate transaction matching and exception handling. Beyond basic rule-based software, machine learning models can perform fuzzy matching across mismatched invoice numbers or business descriptors, automatically reconcile split or multicurrency payments, and flag anomalies for review.

• Comparison and investigation: Conduct a thorough comparison of financial records, identifying any discrepancies. Investigate and resolve these discrepancies promptly by tracing the root causes, correcting errors, and adjusting the financial records accordingly. Proper investigation helps prevent recurring errors and ensure that financial information is accurate.

• Ongoing communication: Foster open communication among relevant departments and individuals in the reconciliation process. Regular communication helps resolve issues, clarify doubts, and share information effectively. A complete, accurate reconciliation process depends on collaboration and coordination among different stakeholders.

• Reconciliation review and approval: Implement a review and approval process to ensure an independent review of reconciled records. This process should include reviewing the accuracy and appropriateness of the reconciled balances and investigating any significant discrepancies. Approval by a designated authority adds another layer of assurance to the reconciliation process.

• Continuous improvement: Evaluate and enhance the reconciliation process regularly by identifying areas for improvement. Analyse patterns of discrepancies, identify potential weaknesses, and implement appropriate measures to prevent future errors. By refining the reconciliation process on an ongoing basis, businesses can maximise accuracy, efficiency, and overall financial control.

Accounting reconciliation with Stripe

Stripe offers a powerful reconciliation solution that automates the process for businesses. It also offers a complete picture of your money movement.

Stripe’s reconciliation process involves comparing your business’s internal records, such as invoices, with external records such as settlement files, payout files, and bank statements. Stripe’s automated system handles this comparison, enabling you to capture revenue accurately and reconcile your internal accounting systems with Stripe-processed charges and refunds at a transaction level.

Stripe’s reconciliation solution provides several benefits for businesses:

• It allows you to track your cash on a daily basis so your financial records stay aligned with funds received. By identifying any gaps in funds flows or data discrepancies, you can address leaks quickly and minimise financial losses.

• Stripe reconciliation offers visibility into the complete lifecycle of each transaction. You can easily trace and monitor the flow of funds, ensuring that every transaction is accurately recorded and accounted for. This level of transparency helps protect your business by identifying any potential errors or irregularities.

• Stripe reconciliation is especially beneficial for businesses with high transaction volumes. If your business processes thousands of transactions each month, the automation and scalability of Stripe’s reconciliation solution can simplify your financial operations.

• If your business works with complex transaction scenarios (e.g., long transaction lifecycles spread across multiple periods, customers who use multiple payment methods in a single transaction), Stripe’s reconciliation solution can handle these complexities effectively. It provides the necessary flexibility and accuracy to reconcile diverse transaction types and ensure accurate financial reporting.

Stripe’s reconciliation solution automates and simplifies the process of comparing internal records with external records, enabling businesses to accurately capture revenue, track cash flow, identify discrepancies, and implement robust financial controls. Whether you have high transaction volumes or complex transaction scenarios, Stripe’s reconciliation solution offers flexible, reliable support for your financial operations. Learn more about Stripe's reconciliation tools.

How Stripe Revenue Recognition can help

Stripe Revenue Recognition helps to streamline accrual accounting – including audits, end-of-month close, reporting, and more – so you can close your books with greater efficiency and accuracy. It automates and configures revenue reports to help support compliance with ASC 606 and IFRS 15.

Revenue Recognition can help you:

• Gain a more complete view of your revenue: In the Stripe Dashboard, see all your Stripe transactions and terms, and import non-Stripe data.

• Automate revenue reports: Generate accounting reports that are ready to use – without engineering resources.

• Customise for your business: Create and automate custom rules to recognise revenue, in line with your business's accounting practices.

• Audit in real time: Prepare for audits by tracing any revenue amount down to the underlying customers and transactions.

Learn more about how Revenue Recognition can help you comply with global accounting principles, or get started today.