What is reconciliation in accounting?
Reconciliation compares two sets of records that should agree, such as a bank statement and the cash ledger, then investigates and resolves any differences.
In more detail
Common ones are bank, credit card, receivables and payables subledger to general ledger, intercompany balances and payment-processor payouts. The mechanics are matching and exceptions. Matching handles exact amounts first, then rules for date windows, grouped payments and fees, then fuzzy matches on reference text. What is left is the exception list. AI helps with the fuzzy matches and with proposing likely causes, such as a timing difference or a bundled payment. A person signs off the final reconciliation and owns unexplained items. Aged unreconciled items are an audit risk, so set a limit on how long one can stay open.
Example
A marketplace receives one bank payout a day that bundles 300 sales less fees and refunds. The system splits the payout into its components, matches each to the order ledger and surfaces the six it cannot place.