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Reconciliation (Accounting) Definition
Reconciliation is an accounting process that ensures two related sets of records are in agreement. This method is used for confirming that the total money leaving the account matches the money actually spent. It makes sure these two records are balanced at the end of the recording period. A slight discrepancy may arise due to the time difference of deposits and payments, but any unexplained difference indicates a theft or a manipulation in the books.
A Little More on Accounting Reconciliation
Reconciliation is important for maintaining a correct record of accounts. It provides accuracy and consistency and helps in avoiding balance sheet errors and maintaining financial integrity. It eliminates the scopes of errors and mitigates mistakes. It also identifies any fraudulent withdrawals from the account.
Both businesses and individuals should follow this method for managing their accounts to avoid discrepancies. It may be done daily, monthly or annually depending on the size of the account.
Double entry accounting is one of the main elements of Generally Accepted Accounting Principles (GAAP). In double entry accounting practice, every transaction is recorded twice in a balance sheet, once as the debit and again as credit. The debit column records the change in the asset side and the credit reflects the change in the equity side. For example, a company owes $200 to its vendor, this amount is to be recorded as the credit under the accounts payable columns and the same amount is to be recorded as debit under the column devoted for expenses. When the amount is paid to the vendor, accounts payable is debited and the cash column is credited. These two should balance at zero.
Reconciliation is used by companies to ensure that the income statement and cash flow statement matches with one another.
It is also effective for maintaining an error-free personal bank account. Individuals may reconcile their checkbooks and credit card accounts with their bank statements. In this way, they can keep a check on any fraudulent transaction or error made by the financial institutions. They can get an overall picture of their expenses by using this method.
References for Reconciliation
Academic Research on Accounting Reconciliation
Report of the ad hoc committee on reconciliation of approaches to bacterial systematics, Wayne, L. G., Brenner, D. J., Colwell, R. R., Grimont, P. A. D., Kandler, O., Krichevsky, M. I., … & Starr, M. P. (1987). International Journal of Systematic and Evolutionary Microbiology, 37(4), 463-464. This paper explains that bacterial taxonomy has become more focused since the introduction of numerical taxonomy and methods of computing the evolutionary divergence in the structure of semantids. This has led to the changes in the nomenclature that sometimes have adverse effects. This paper attempts to reexamine the current nomenclatural system because of recent taxonomic understandings.
Secret-key reconciliation by public discussion, Brassard, G., & Salvail, L. (1993, May). In Workshop on the Theory and Application of Cryptographic Techniques (pp. 410-423). Springer, Berlin, Heidelberg. This article presents a procedure used to develop protocols that reduce the amount of information leaked although it cannot be efficiently implemented. The article also provides a protocol that is more efficient and which only leaks an information amount that is tolerably close to the set minimum for reliable secret channels.
Toward a Reconciliation of the Definitional Issues in the Field of Corporate Entrepreneurship*, Sharma, P., & Chrisman, S. J. J. (2007). In Entrepreneurship (pp. 83-103). Springer, Berlin, Heidelberg. This paper reconciles the differences in the terms used to define various entrepreneurial activities in existing firms by different authors since these terminologies cause confusion. It discusses the present descriptions particularly in the field of corporate entrepreneurship, reconciles them and then presents a process to classify and understand these activities.
For reconciliation, McThenia, A. W., & Shaffer, T. L. (1984). Yale Lj, 94, 1660. This study presents comments by Owen Fiss against the Alternative Dispute Resolution (ADR) movement. He states in the study that the whole movement for alternatives to litigation is invalid. This study presents his views which say that he understands the claim to legitimacy by the campaign encourages the inefficiency of the legal system.
From intractable conflict through conflict resolution to reconciliation: Psychological analysis, Bar‐Tal, D. (2000). Political Psychology, 21(2), 351-365. This paper describes the procedure involved in the formal termination of intractable intergroup conflicts, and it begins with doing away with the perceived problem between the opposing parties through mediations done by their representatives. It also states that psychological reconciliation involves forming an ethos of peace although it is hard in situations of intractable conflict.
Reconciliation through the public use of reason: Remarks on John Rawls’s political liberalism, Habermas, J. (2012). In Habermas and Rawls (pp. 37-57). Routledge. This article attempts to reconcile the views by John Rawl and Immanuel Kant on political liberalism. John brings back the long-suppressed moral questions in the status of significant objects of philosophical investigation. Immanuel presents an essential question of morality that begs the answer that we are obligated to do what is right for everyone.
Chief executive compensation: A synthesis and reconciliation, Finkelstein, S., & Hambrick, D. C. (1988). Strategic Management Journal, 9(6), 543-558. This paper researches and pools together the existing study material on CEO compensation and then majors on the factors and effects of this complex. It argues that CEO reimbursement is more sensible than what the critics say. To understand the issue of CEO compensation, multiple perspectives are needed.
Reconciliation of probability distributions, Lindley, D. (1983). Operations Research, 31(5), 866-880. Since various people express their opinions of uncertainty by providing the mean and standard deviation, this paper explains the difficulty associated with reconciling all these opinions in one probability distribution for the quantity. It also presents the benefits of utilizing t-distributions and emphasizes the importance of the information provided by the standard deviations.
Traditional and modern approaches to customary international law: a reconciliation, Roberts, A. E. (2001). American Journal of International Law, 95(4), 757-791. This study suggests a custom theory that incorporates both the traditional and modern approaches to determining customary international law. The article dismisses analysis of custom on a sliding scale and opts instead for a reflective and interpretive approach used to reconcile the descriptive and normative instances of these approaches.
Towards reconciliation of market performance measures to strategic management research, Lubatkin, M., & Shrieves, R. E. (1986).. Academy of Management Review, 11(3), 497-512. This research determines four issues that show the different perspectives of strategic management and finance on an event-study methodology. These issues are essential in evaluating a number of finance procedures used to compute market-based performance measures. It also determines other methods in each situation that make such measures statistically relevant.
Corporate identity, corporate branding and corporate reputations: Reconciliation and integration, Abratt, R., & Kleyn, N. (2012). European Journal of Marketing, 46(7/8), 1048-1063. This paper uses a specific framework to explore, define, reconcile and also to depict corporate identity, corporate brand, and corporate reputation. This framework is used to highlight dimensions of such constructs, finds the differences between them and also represent their relationship.