What Is Meant By 'Reconciliation'?


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Bilal Ahmad Profile
Bilal Ahmad answered
If there is a dispute between two friends, or they fail to agree about some matter, the disagreement may temporarily end the friendship between them. When they become friends again we say they have reconciled with one another. Reconciliation is, therefore, resuming of friendly relations as a result of reasonable explanations between them.
In business we often have sets of figures (balances of cash book and pass book) which apparently disagree with one another, but reasonable explanations for the disagreement will reconcile the two sets of figures and show that, in fact, both are right.

There are three reasons why these figures (cash book balance and pass book balance) do not agree:a) One party may lack the knowledge of the transactions recorded by the other.
b) There is always an unavoidable delay between one party doing something and the other party knowing about it.c) Errors and mistakes often occur.

If there is any discrepancy between the balance of cash book and that of pass book, the depositor prepares a statement to explain the causes of discrepancies and to reconcile the two balances. This statement of explanation is called "bank reconciliation statement". The idea of the bank reconciliation statement is to discover the various things the bank has done on the pass book which the cashier was not aware of, put right anything that is wrong and draw up a logical explanation of the remaining differences, which are not wrong, but are delayed from being right by the time lag.

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