A reconciliation account is used in accounting as a summary of other accounts. What is the function of the reconciliation account? The reconciliation account is used to summarize the sub-ledger accounts. This account differs from the other accounts since it acts as a summary. Therefore, no transaction activity is posted directly to the reconciliation account.
The reconciliation account is used to check for errors in the sub-ledgers. The term “reconciliation” in accounting involves comparing two or more balance sheets to check for errors. Even if a person is unfamiliar with the accounting practices of reconciliation, the process is similar to comparing a bank statement with a checking account ledger. If the balances do not match, it may indicate an error.
The reconciliation of accounts typically occurs at the end of an accounting period. The accounting period may be monthly, quarterly, semi-annually, or annually. The process of reconciliation not only checks the accuracy of other ledgers or balance sheets, but can check that the amounts leaving the accounts match the costs. The summary of the activity of the sub-ledgers for a given period is called a reconciliation report.
Numerous sub-ledgers may be compared in the reconciliation account. In a large business or organization, the reconciliation account provides an overview of how the balance sheets of several accounts or sub-ledgers match.
If there is a discrepancy found in a balance sheet, the accounting process itself is checked for errors. For example, if the difference is divisible by nine, the person entering the information on the balance sheet may have transposed a number such as typing “20” instead of “02”.
If the accuracy of the ledgers themselves is confirmed, the error may be corrected by checking the sources of the information in the ledger. In some instances, receipts may be available to compare against the ledger entries to confirm their accuracy.
Many companies outsource their general ledger accounting including reconciliation. For example, a small business may not keep an accountant on staff, but instead pay an accountant to update their ledger every quarter. Though many small business owners may wait until the time to file their taxes to have their finances organized, many small businesses needs to maintain accurate records throughout the year.
Some business software programs are useful in reconciling business accounting records. Business accounting software is available for purchase on the Internet and at office supply stores. Many people find this type of software useful for personal accounts or home-based businesses as well.