What Is Reconciliation?
Reconciliation is the process of comparing two sets of financial records to ensure they match. When discrepancies exist, reconciliation involves investigating the differences and making appropriate adjustments to bring the records into agreement.
Common reconciliation types include:
- Bank reconciliation: Matching bank statements to cash accounts in the general ledger
- Intercompany reconciliation: Ensuring transactions between related entities net to zero
- Subledger reconciliation: Verifying that subledger totals (AR, AP, inventory) match GL control accounts
- Vendor/Customer reconciliation: Matching your records to statements from trading partners
Why Is Reconciliation Important?
Reconciliation serves several critical functions:
Accuracy assurance: Confirms that recorded transactions are complete and correct
Fraud detection: Identifies unauthorized transactions or misappropriations
Error identification: Catches data entry mistakes, timing differences, and system errors
Audit readiness: Provides documentation that account balances are verified
Financial integrity: Ensures financial statements reflect reality
The Reconciliation Process
1. Gather Records
Obtain both sets of data to be compared:
- Internal records (GL, subledgers)
- External records (bank statements, vendor statements)
2. Compare Balances
Match the ending balances or transaction details:
- Do the totals agree?
- Can individual transactions be matched?
3. Identify Differences
Document discrepancies:
- Timing differences (items in transit)
- Errors (wrong amounts, duplicates)
- Missing items (unrecorded transactions)
- Unauthorized items (potential fraud)
4. Investigate and Resolve
For each difference:
- Determine the cause
- Decide on corrective action
- Make adjusting entries if needed
- Document the resolution
5. Document and Approve
Create a reconciliation workpaper showing:
- Beginning and ending balances
- Reconciling items
- Adjustments made
- Preparer and reviewer sign-off
Common Reconciliation Challenges
Volume: Thousands of transactions to match manually
Timing: Items appear in different periods across systems
Format differences: Data structured differently in each source
Partial matches: Transactions split or combined between systems
Time pressure: Reconciliations due during compressed close period
Manual vs. Automated Reconciliation
| Aspect | Manual Reconciliation | Automated Reconciliation |
|---|---|---|
| Time required | Hours to days | Minutes |
| Error rate | High (human fatigue) | Low (consistent rules) |
| Scalability | Limited by staff | Unlimited volume |
| Documentation | Often incomplete | Automatic audit trail |
| Matching logic | Simple exact matches | Complex fuzzy matching |
How Go Fig Automates Reconciliation
Go Fig transforms reconciliation from a manual burden to an automated process:
Automatic data gathering: Pull records from both sources without manual exports
Intelligent matching: Match transactions using multiple criteria (amount, date, reference, description)
Exception highlighting: Surface only the items that need human attention
Workflow integration: Route exceptions to the right people for resolution
Audit trail: Document every match and exception with full history
Continuous reconciliation: Run daily instead of just at month-end
Reconciliation Best Practices
- Reconcile frequently: Daily or weekly reconciliations catch issues earlier
- Standardize processes: Use consistent templates and procedures
- Segregate duties: Different people prepare and review reconciliations
- Document thoroughly: Explain every reconciling item
- Set materiality thresholds: Focus attention on significant differences
- Automate where possible: Reserve human effort for judgment calls
Impact of Better Reconciliation
Organizations that automate reconciliation typically see:
- 80% reduction in reconciliation time
- 90% fewer errors reaching financial statements
- Earlier identification of issues
- Faster month-end close
- Reduced audit fees (cleaner workpapers)