Two records should agree and don't: the bank and the ledger, a supplier's statement and your payables, orders shipped and orders invoiced. A reconciliation lines them up, matches what matches, and explains every difference that's left.
Where it comes from
Reconciliation is one of the first things accounting students are taught. ACCA's foundation material covers bank and supplier statement reconciliations. The method is the same everywhere: start from both balances, list the differences, and classify each one.
The four kinds of difference
| Kind | Example | What to do |
|---|---|---|
| Timing | A check written on the 30th, cleared on the 2nd | Note it; it should clear next period |
| Missing | A supplier invoice on their statement, not in payables | Find it and record it |
| Duplicate | The same invoice entered twice | Reverse one; ask why it was possible |
| Error | Wrong amount, wrong account, wrong customer | Correct it; count it for the root cause |
How a bot helps
Matching is tedious and a bot is fast at it: thousands of lines by amount, date, reference and counterparty, with near-matches flagged ("same amount, dates 3 days apart, reference off by one digit"). It hands people a short list of real differences instead of a long one of lines.
Then count the differences by kind and cause. A reconciliation that keeps finding the same kind of error is a process problem, and it's the input to a fishbone.
On the bots' own work
Reconcile what a bot says it did against what happened: its report of sent messages against the outbox, its list of updated files against the files. The same four kinds turn up.
When to use it
Whenever two records should agree, on a schedule (monthly at close) and whenever a dispute starts. Light to medium, depending on volume.
Where bots differ
A bot can force a match. Asked to "make it reconcile", it may pair lines that only look alike. Every match it makes needs a rule (exact, or near with the rule stated), and a person approves any adjustment. A bot never posts the adjusting entry itself.
Sources: ACCA: reconciliations in the foundation syllabus.
Back to Engineering tools for bots.
Short outline
Reconciliation: short outline
What it's for
A reconciliation matches two records that should agree for the same period and explains every difference as timing, missing, duplicate or error. Repeated differences point to a process problem.
Columns
| Column | What goes in it |
|---|---|
| Record A and balance | The first record, its source and its balance at the cutoff |
| Record B and balance | The second record, its source and its balance at the same cutoff |
| Item | One row per unmatched item |
| Amount | The item's amount and which side it's on |
| Kind | Timing, missing, duplicate or error |
| Match rule | Exact, or the near-match rule used |
| Evidence | The document that explains it |
| Action and owner | Adjust, chase, or wait to clear, and who does it |
| Approved by | The person who approved any adjustment |
Steps, each with its "done when"
- Fix the cutoff and both balances. Done when both records are pulled for the same cutoff and their balances are written down.
- Match with stated rules. Done when every match is exact or uses a written near-match rule, and near-matches are listed for review.
- Classify every unmatched item. Done when each item is timing, missing, duplicate or error, with evidence.
- Prove the difference. Done when balance A plus or minus the listed items equals balance B, with nothing unexplained.
- Act and count the causes. Done when each item has an owner, adjustments are approved by a person, and repeated errors are logged for root cause.
Common mistakes
- Different cutoffs on the two sides.
- A "plug" or unexplained difference left to make it balance.
- Forcing matches that only look alike.
- Correcting each error and never asking why the same kind keeps appearing.
- A bot posting adjustments without a person's approval.