Glossary

Reconciliation and close glossary

Short, accurate definitions. For the mechanics behind any of these, see the worked reconciliation guide.

Account reconciliation: The process of comparing a balance in your books to an independent source (a bank statement, a sub-ledger, another entity's records) and explaining every difference between them. It applies to cash, credit cards, receivables, payroll liabilities and more, not only bank accounts.
Bank reconciliation: Account reconciliation applied specifically to a bank account: matching your cash ledger against the bank's own statement, separating timing differences from real errors, until an adjusted bank balance and an adjusted book balance agree.
Book balance: The cash balance shown in your own accounting records (the general ledger cash account) as of a given date, before any reconciling adjustments for items the bank has not yet recorded.
Bank statement balance: The ending balance shown on the bank's own statement for a period, reflecting only what the bank has actually processed as of the statement date.
Adjusted balance: The balance you arrive at after adding or subtracting all reconciling items to either the bank balance or the book balance. When a reconciliation is clean, the adjusted bank balance and adjusted book balance are equal.
Outstanding check: A check that has been written and recorded in the books but has not yet been cashed or cleared by the bank. It is a normal timing difference, subtracted from the bank statement balance when calculating the adjusted bank balance, and it needs no journal entry.
Deposit in transit: A deposit that has been recorded in the books but has not yet posted to the bank statement, typically because it was made near the end of the period. It is added to the bank statement balance when calculating the adjusted bank balance.
NSF check (non-sufficient funds): A check deposited and initially recorded as a receipt, then returned unpaid by the payer's bank because their account lacked sufficient funds. It requires a book-side reversal: the cash increase originally recorded has to be backed out.
Bank service charge: A fee the bank deducts directly from the account, such as a monthly maintenance fee or a wire transfer fee, that appears on the statement before it has been entered in the books. It is a book-side adjustment requiring a journal entry.
Suspense account: A temporary holding account for a transaction that cannot yet be classified correctly, such as an unidentified deposit. It should carry a balance only briefly; a suspense account that grows or ages over multiple periods usually signals an unresolved reconciling item.
Timing difference: A gap between the bank balance and the book balance caused by a real transaction that has been recorded on one side but has not yet posted on the other, such as an outstanding check or a deposit in transit. Timing differences resolve themselves the following period and require no adjusting entry.
Three-way match: A purchasing control that compares the purchase order, the vendor's bill, and the receiving record before a bill is approved for payment, confirming that what was ordered, billed and actually received all agree.
Debit: An entry on the left side of a double-entry bookkeeping record. Debits increase asset and expense accounts and decrease liability, equity and revenue accounts.
Credit: An entry on the right side of a double-entry bookkeeping record. Credits increase liability, equity and revenue accounts and decrease asset and expense accounts.
General ledger: The complete record of every account and every transaction in a business's books, from which the balance sheet and profit and loss statement are ultimately built. Reconciliation compares specific general ledger account balances to independent outside sources.
Sub-ledger: A detailed supporting record for a single general ledger account, such as an accounts receivable aging report or a fixed asset schedule, whose total should tie exactly to the corresponding general ledger balance.
Journal entry: A recorded transaction in the accounting system, made up of at least one debit and one credit of equal total value, used both for regular transactions and for the adjustments a reconciliation surfaces.
Accrual: An entry that recognizes revenue when it is earned or an expense when it is incurred, regardless of when cash actually changes hands. Accruals are what let a month's financial statements reflect the month's real activity rather than only its cash movements.
Month-end close: The recurring set of tasks, reconciling accounts, entering outstanding bills and invoices, posting accruals, reviewing statements, and locking the period, that turns a month of raw transactions into finished, trustworthy financial statements.
Trial balance: A listing of every general ledger account and its balance at a point in time, used to confirm that total debits equal total credits before financial statements are finalized.
Balance sheet reconciliation: Reconciliation applied to any balance sheet account, not only cash, tying the general ledger balance to an independent supporting schedule such as a fixed asset register, a prepaid expense schedule, or an aged receivables report.
Intercompany reconciliation: Confirming that balances recorded between two related legal entities, such as a loan or a shared-expense allocation, net to zero across the group: what one entity records as owed to the other must match what the other entity records as receivable.
Payroll reconciliation: Comparing the payroll processor's reports for a pay period, gross wages, tax withholding, benefits deductions, employer taxes, against what actually posted to the general ledger, to catch stopped-syncing deductions or unremitted tax liabilities.
Credit card reconciliation: Reconciliation applied to a credit card account, matching the issuer's statement to the ledger's credit card liability account. It commonly requires inverting the sign of one side, since issuer statements typically show charges as positive amounts while many ledgers record card purchases as negative.
Void check: A check that was written and recorded but later canceled before being cashed, requiring a reversing entry. Voiding a check in an already-closed period changes that period's figures after the fact and should be flagged for review.
Stale-dated check: A check that remains outstanding well past a normal clearing window, often 90 days or more, and may need to be voided and reissued, or escheated under state unclaimed-property rules if the payee cannot be reached.
Cutoff: The point at which no further transactions are recorded into a closing period. A firm cutoff date is what stops a month-end close from becoming an open-ended search for stray invoices and bills.
Reconciling item: Any specific, named difference between two balances being reconciled, whether a timing difference (an outstanding check) or a missing entry (a bank fee). A completed reconciliation accounts for every reconciling item individually.
Clearing account: A temporary account used to record a transaction, such as a transfer between a business's own accounts or funds in transit, before it is allocated to its final destination account. Balances in a clearing account should be cleared out regularly, not allowed to accumulate.
Match rate: The share of bank transactions successfully paired with a corresponding ledger entry during an automated reconciliation, expressed as a percentage. A high match rate with a small number of clearly explained unmatched lines is the sign of a clean reconciliation.