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A junior accountant is asked to reconcile a vendor or bank account and does not know the steps, what to collect first or when the job is done.
Six steps apply to any account: choose account and date; collect book balance and independent statement; compare line by line; list differences; correct errors and carry timing items forward; review and sign.
A standard working paper per account, a fixed cut-off date, last month's open items list, and a named reviewer who signs within an agreed number of days after month end.
Each account has a signed reconciliation where the adjusted book and statement balances agree, errors are corrected and every open item has an owner.
Account reconciliation has six steps, whatever the account: pick the account and the date, collect the balance per your books and the balance per an independent statement, compare them line by line, list the differences, correct errors and carry timing items forward, then have someone review and sign. The steps are the same for a bank account, a supplier ledger or a loan.
What must you have in hand before you start?
Collect four things before you open the spreadsheet:
- The ledger extract for the account, with every entry up to the cut-off date.
- The independent statement for the same date: a bank statement, the supplier’s statement of account, a customer confirmation or the lender’s loan statement.
- The cut-off date. Usually the last day of the month. Both records must stop at the same date.
- Last month’s open items. Anything carried forward from the previous reconciliation should be checked first, because many will have cleared.
If the statement is for a different date from your ledger, the comparison is meaningless. Get the right statement before you start.
What are the six steps?
| Step | What you do | Who does it | Evidence to keep |
|---|---|---|---|
| 1. Choose account and date | Decide which account and the cut-off date | Preparer | Name of account and date on the working paper |
| 2. Collect both balances | Note the book balance and the statement balance | Preparer | Ledger extract and statement copy |
| 3. Compare line by line | Tick each entry that appears in both records | Preparer | Ticked ledger and statement |
| 4. List the differences | Write down every unticked line as a reconciling item | Preparer | Reconciling items list with references |
| 5. Correct and carry forward | Pass correcting entries for errors; carry timing items forward | Preparer, approved by reviewer | Journal entries and the open items list |
| 6. Review and sign | A second person checks the work and signs with the date | Reviewer | Signed working paper |
The reconciliation is finished only when the adjusted balances agree, or any remaining difference is clearly shown as unexplained and escalated.
A worked example: a supplier ledger
At 30 September, your ledger for a packaging supplier shows ₹3,28,400 payable. The supplier’s statement shows ₹3,64,900 due from you. The supplier says you owe ₹36,500 more than your books show.
Comparing line by line (step 3), every invoice and payment ticks except one: the supplier’s invoice 4471 dated 27 September for ₹36,500. It is on their statement but not in your ledger.
| Item | Amount |
|---|---|
| Balance per supplier statement | ₹3,64,900 |
| Balance per your ledger | ₹3,28,400 |
| Difference | ₹36,500 |
| Invoice 4471 not booked | ₹36,500 |
| Unexplained | ₹0 |
Step 5: the stores team confirms the goods were received on 28 September, but the bill was still in the purchase manager’s tray. Book it as a purchase in September, crediting the supplier with ₹36,500. If it includes GST, split it between purchases and input GST according to the invoice.
After the entry, your ledger shows ₹3,64,900, which agrees with the supplier statement.
When do you stop investigating and escalate?
Do not spend days on a single difference alone. Escalate to your reviewer when:
- You have compared both records line by line and the difference still has no cause.
- The difference involves a payment you cannot trace to an approved bill.
- The supplier or bank disputes an entry you believe is correct.
- The amount is above a limit your team has agreed, such as ₹10,000.
When you escalate, write down what you have already checked. It saves the reviewer from repeating the same work.
How do the steps become a monthly routine?
Once you have done a few reconciliations, the next step is to run them in a fixed order each month, with set dates for each account. The monthly close playbook lays out that sequence, and the cause taxonomy helps you sort differences into a small number of root causes so the same mistakes stop repeating.
What to read next
- Next in this series: Account reconciliation template: the columns, formulas and sign-off block
- Reconciliation playbook for the monthly close
- The 6P cause taxonomy for reconciliation differences
- For running these steps across many accounts, see reconciliation software for Indian finance teams
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →