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A junior accountant has a reconciliation that does not agree and cannot tell which differences will clear on their own and which need a correcting entry.
Every reconciling item is either a timing difference (a correct entry not yet in the other record) or an error (a wrong or missing entry). Timing differences are carried forward; errors are corrected; anything left over is investigated, never plugged.
A reconciling items list with columns for date, amount, reference, type (timing or error), owner, action and age in days, carried forward and ticked off each period.
The reconciliation shows every difference with its type and owner, errors are corrected in the books, timing items clear in the next period, and no unexplained amount is hidden.
A reconciling item is any entry that makes two records differ on a given date. There are two kinds. Timing differences are correct entries that one record has not caught up with yet; they clear by themselves later. Errors are wrong or missing entries; they need a correcting entry. Anything you cannot place in either group is an unexplained difference and must be investigated, not plugged.
What do reconciling items look like in practice?
| Item | Timing or error | Who fixes it | Example |
|---|---|---|---|
| Cheque issued, not yet presented | Timing | Clears when the payee banks it | Cheque for ₹45,000 issued on 29 March, cleared on 3 April |
| Deposit in transit | Timing | Clears when the bank credits it | Cash of ₹25,000 deposited on 31 March, credited on 1 April |
| Bank charge not booked | Error (missing entry) | Accounts books it | ₹590 SMS and service charge on the statement only |
| Wrong amount keyed | Error | Accounts corrects it | ₹52,000 entered for a ₹27,000 payment |
| Duplicate posting | Error | Accounts reverses one entry | Same supplier bill booked twice |
| TDS deducted, not yet in the credit statement | Timing | Clears when the deductor files its TDS return | Customer deducted ₹10,000 in March; it appears after their quarterly return is filed |
Two quick tests help. Ask “will this clear on its own if I do nothing?” If yes, it is timing. Then ask “is either record wrong?” If yes, it is an error.
A worked example: ₹1,00,000 apart
A company’s bank ledger shows ₹8,40,000 at month end and the bank statement shows ₹9,40,000. The books are ₹1,00,000 lower.
| Item | Type | Amount |
|---|---|---|
| Two cheques issued to suppliers, not yet presented (₹40,000 and ₹30,000) | Timing | ₹70,000 |
| Payment keyed as ₹52,000 instead of ₹27,000 | Error | ₹25,000 |
| Not yet explained | Unexplained | ₹5,000 |
| Total difference | ₹1,00,000 |
The ₹70,000 of cheques will clear when the suppliers bank them, so they are carried forward. The ₹25,000 keying error is fixed with a correcting entry that adds ₹25,000 back to the bank ledger.
That leaves ₹5,000. It is tempting to book it to “miscellaneous” and close the month. Do not. It might be a receipt not recorded, a charge, or something worse. Show it as unexplained and keep looking. A reconciliation that agrees only because of a balancing figure is not a reconciliation.
How long can a timing difference stay open before it becomes a problem?
Most timing differences should clear within days or, at most, the next reconciliation cycle. Treat these as warning signs:
- A cheque that is never presented. Bank cheques are valid for a limited period from the date on the cheque. Once that period has passed, the payee cannot bank it, so the item is no longer timing. Contact the payee and reverse or reissue.
- A deposit in transit that does not appear next month. Cash or a cheque that left your hands and never reached the bank needs urgent follow-up.
- TDS that never appears in the credit statement. The customer may not have filed its TDS return or may have quoted a wrong PAN. Follow up with the customer.
- Any item older than two cycles. Escalate it to your reviewer.
What should the reconciliation statement show for items carried forward?
Each open item should carry five facts: the date it arose, the amount, a reference (cheque number, UTR or invoice number), its type and its age. When it clears, tick it off and record the date it cleared.
A short list of open items that changes every month is healthy. A long list that keeps the same old entries is a sign that the reconciliation is being prepared but not acted on.
What to read next
- Next in this series: Account reconciliation process: the six steps with a worked example
- Financial reconciliation dictionary: the terms you will meet
- Reconciliation errors: missing and mistimed entries
- For the full picture, 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 →