What is Accounts Reconciliation?

What gets reconciled
Bank reconciliation: the familiar case

Accounts reconciliation is the check that an account balance in your books matches an independent record of the same thing, and the work of explaining or correcting any difference. You compare your cash account with the bank statement, your accounts receivable with the list of open customer invoices, your accounts payable with vendor statements, and so on. When every difference is explained and the corrections are posted, the account is reconciled.

Billed publishes this page. The accounting definitions below come from the open textbook Principles of Accounting, Volume 1: Financial Accounting (OpenStax), sections 7.4 Prepare a Subsidiary Ledger and 8.6 on bank reconciliation. The US recordkeeping guidance comes from IRS Publication 583, Starting a Business and Keeping Records (12/2024). All were opened on October 29, 2026. This is general information, not accounting or tax advice; ask your accountant where judgment is needed.

What gets reconciled

Each account in your general ledger can be checked against a record kept outside your books:

Cash and bank accounts against the bank statement (a bank reconciliation, below).
Credit card accounts against the card statement.
Accounts receivable against the list of unpaid customer invoices, customer by customer.
Accounts payable against unpaid vendor bills and vendor statements.
Loans against the lender's statement.
Payroll liabilities against your payroll provider's reports.

For receivables and payables, the customer-by-customer or vendor-by-vendor detail is kept in a subsidiary ledger. OpenStax explains why that detail is useful: "Since the total of the accounts receivable subsidiary ledger must agree with the balance shown in the accounts receivable general ledger account, the system helps us find mistakes."

Bank reconciliation: the familiar case

OpenStax defines it this way: "The bank reconciliation is the internal financial report that explains and documents any differences that may exist between the balance of a checking account as reflected by the bank's records (bank balance) for a company and the company's accounting records (company balance)."

The balances can differ for reasons OpenStax lists, including:

"An outstanding check: a check that was written and deducted from the financial records of the company but has not been cashed by the recipient";
"A deposit in transit: a deposit that was made by the business and recorded on its books but has not yet been recorded by the bank";
bank service fees the bank has deducted but you haven't recorded;
errors by either the business or the bank;
interest or other amounts the bank has added.

For US businesses, IRS Publication 583 says: "When you receive your bank statement, make sure the statement, your checkbook, and your books agree." It adds: "You should reconcile your checking account each month." For the step-by-step method, see what is bank reconciliation.

How to reconcile an account

Pick the account and the date. Reconcile as of a period end, such as the last day of the month.
Get the independent record for the same date: the bank or card statement, the open-invoice list, vendor statements or the lender's statement.
Compare the two balances. If they match, check that the detail matches too.
Explain every difference. Sort each one into a timing item (it will clear on its own, like a deposit in transit), an entry missing from your books, or an error.
Post corrections for missing entries and errors as journal entries, so the adjusted book balance equals the independent record. Timing items stay on the reconciliation until they clear.
Keep the reconciliation with the statement or report you compared against, and note who prepared and reviewed it.

Worked example: reconciling accounts receivable

The business and figures here are a sample, invented for this example.

A design studio closes March. Its general ledger shows accounts receivable of $14,250. The open-invoice report from its invoicing tool lists three unpaid invoices:

Client A: $6,000
Client B: $4,750
Client C: $2,700
Total: $6,000 + $4,750 + $2,700 = $13,450

The difference is $14,250 − $13,450 = $800, with the books higher. Going through March, the studio finds two causes:

Client B paid $1,000 on March 30. The payment was recorded against the invoice in the invoicing tool and appears on the bank statement, but it wasn't posted to the books. That leaves the books $1,000 too high.
A $200 invoice to Client C, sent on March 31, wasn't recorded in the books. That leaves the books $200 too low.

Together: $1,000 − $200 = $800, which explains the whole difference.

The correcting journal entries:

Entry 1, March 30 payment: debit Cash $1,000; credit Accounts Receivable $1,000.
Entry 2, March 31 invoice: debit Accounts Receivable $200; credit Service Revenue $200.

Each entry's debits equal its credits ($1,000 = $1,000 and $200 = $200). After posting, accounts receivable in the books is $14,250 − $1,000 + $200 = $13,450, which matches the open-invoice report. The cash entry also brings the books in line with the bank statement for that deposit.

Common causes of differences

Timing: checks not yet cashed, deposits not yet on the statement, payments received on the last day of the period.
Missing entries: bank fees, interest, card payments or invoices recorded in one system but not in the books.
Duplicates: the same transaction entered twice, for example once by hand and once from an import.
Errors: transposed digits, a payment applied to the wrong customer, or an entry posted to the wrong account.

When to reconcile

For US businesses, IRS Publication 583 says to reconcile your checking account each month. For other accounts, match the schedule to how much moves through them: an account with daily activity needs checks at shorter intervals than one that changes a few times a year. Ask your accountant which accounts to reconcile and on what schedule, and settle any difference you can't explain before you close the period.

Where Billed fits

Billed is invoicing software, and it publishes this page. Its financial reporting page says Billed's reports include "Invoice Reports (paid, partially paid, and overdue)" and that "Each report can be filtered by date range and exported." An exported invoice report is the kind of open-invoice list you can compare with accounts receivable in your books, as in the example above. Billed's invoice software page also says invoice reports show "which invoices are paid, partially paid or past due", and its expense tracking page says an expense in Billed records "who you paid, when, how much and which category it belongs to, with the receipt attached to the same entry", which gives you the supporting record for each expense you reconcile.

When this guide isn't for you

This page covers reconciliation for a small business keeping its own books or working with a bookkeeper. If you consolidate several entities, reconcile intercompany balances, or work in a regulated industry with its own reporting rules, work with an accountant who knows that setup.

Frequently Asked Questions

What is the difference between bank reconciliation and accounts reconciliation?

A bank reconciliation compares your cash account with the bank statement. Accounts reconciliation is the wider practice of checking any account in your books against an independent record, such as accounts receivable against the open-invoice list or accounts payable against vendor statements.

How regularly should a small business reconcile its accounts?

For US businesses, IRS Publication 583 says to reconcile your checking account each month. For other accounts, base the schedule on how much activity they have, and ask your accountant which ones need monthly checks.

What causes reconciliation differences?

Timing items such as outstanding checks and deposits in transit, entries missing from your books such as bank fees or unrecorded payments, duplicate entries, and errors such as transposed digits or a payment applied to the wrong customer.

What do I do when an account won't reconcile?

List each difference and sort it into timing, missing entry or error. Post journal entries for missing entries and errors, leave timing items on the reconciliation until they clear, and ask your accountant about any amount you can't explain.

Does reconciling accounts receivable need a list of open invoices?

Yes. The total of the customer-by-customer detail, such as an open-invoice report, should agree with the accounts receivable balance in your general ledger. A difference points to a missing entry, a duplicate or an error.

Was this article helpful?

What Is Accounts Reconciliation? A Simple Guide for Small Businesses