Definition
Account reconciliation is part of every business's financial activities, typically performed towards the end of an accounting period. This process helps ensure that the general ledger balances are accurate and complete. As part of the account reconciliation activity, the financial team compares the company's general ledger balances under each account to various independent systems, supporting documentation, and sometimes third-party data. This helps substantiate the balance as per the general ledger.
Example
Examples of top account reconciliation software: Oracle Hyperion, Redwood Finance, Oracle NetSuite ERP, Intuit QuickBooks, BlackLine
Why it matters
Account reconciliation is crucial for any company's financial processes as it ensures the completeness and accuracy of its financial statements. Companies must reconcile all balance sheet accounts to avoid any misstatements. This process may involve identifying and posting various adjustments to the general ledger to ensure accurate financial reporting.The reconciliation process is crucial to the company's internal control. Additionally, Section 404 of the Sarbanes-Oxley Act also mandates all public companies to include an assessment of their internal controls as part of their annual reports. If account reconciliation is not done in a timely manner, it could result in significant financial risk.