What Are Reconciling Items? Definition, Types, and Real-World Examples

It’s 11 PM on the last day of the month. Your finance team is racing to close the books, but there’s a problem: your cash account, which represents the company's books, shows $847,325, while the bank statement, reflecting the bank balance, reads $863,190. Reconciling these account balances is crucial for accurate financial reporting. The $15,865 difference isn’t going to resolve itself, and every hour spent tracking it down delays your financial close.

This scenario plays out in accounting departments every month. Unresolved discrepancies don’t just slow your close—they create compliance risks, trigger audit flags, and force leadership to make decisions on incomplete data. If reconciling items remain unresolved, they can distort financial statements by misrepresenting the company’s true financial position. The culprit? Reconciling items: differences between two sets of financial records that require investigation and resolution.

While you can’t eliminate reconciling items entirely, mastering how to identify, categorize, and resolve them efficiently accelerates your monthly close, keeps audit trails clean, and improves financial accuracy. This guide covers exactly what reconciling items are, why they appear, and how to handle each type effectively—whether you’re reconciling bank accounts, intercompany transactions, or balance sheet accounts.

What Are Reconciling Items?

A reconciling item is a difference that arises when comparing the company's internal financial records with external records, such as bank statements or vendor invoices, or between two internal records that must be investigated and resolved. These discrepancies surface during regular reconciliation procedures—typically monthly—when your accounting team compares general ledger balances to bank statements, subsidiary ledgers, or intercompany records.

Temporary vs. Permanent Reconciling Items

Understanding the difference between temporary and permanent items determines how you resolve them:

Temporary reconciling items are timing differences that resolve naturally. A check you wrote on March 31st that doesn't clear until April 2nd creates a temporary item requiring no journal entry—you simply document it on your reconciliation, and it disappears next month.

Permanent reconciling items represent actual errors or omissions requiring corrective action. An unrecorded bank fee, a transposed digit, or a missed transaction creates a permanent item that needs a journal entry to correct your books.

Impact on General Ledger Accuracy

Unresolved reconciling items directly compromise your general ledger’s reliability. Your GL balance doesn’t reflect the true state of your accounts until these items are addressed, creating a ripple effect: financial statements carry forward inaccurate balances, reports mislead stakeholders, and audit risk increases with every unresolved variance. Tracking discrepancies and ensuring their efficient resolution are essential for maintaining the reliability of the general ledger and financial statements.

Types of Reconciling Items in Accounting

Reconciling items fall into distinct categories, each requiring different resolution approaches. Recognizing which type you're dealing with speeds up investigation and determines whether you need to adjust your books or simply document the variance.

Timing Differences

The most common reconciling items occur when transactions are recorded in different periods by you and the bank. These typically resolve themselves without journal entries.

Deposits in transit are funds you've recorded but the bank hasn't yet credited. You deposit a check on the last day of the month, but it doesn't post until the next business day.

Outstanding checks are payments you've issued and recorded but haven't cleared the bank. You write a vendor check on March 28th, but they don't cash it until April 5th.

Bank-Initiated Transactions

Banks process transactions you may not know about until receiving your statement. These always require journal entries to update your books.

Bank fees are amounts bank charged, such as monthly maintenance fees, overdraft fees, wire transfer costs, and ATM fees that hit your account automatically.

Interest income consists of interest credits from the bank. Interest income is the amount credited by the bank for interest accrued on deposits that has not yet been updated in the company's books.

NSF (non-sufficient funds) checks occur when a customer’s check bounces. The bank reverses the deposit, requiring you to reverse it in your books and restore the accounts receivable balance.

Manual or System Errors

Errors create permanent reconciling items requiring immediate correction through journal entries. Discrepancies often originate within internal systems, especially in organizations managing complex financial operations or experiencing high transaction volumes.

Duplicate entries happen when transactions get recorded twice—often when multiple people handle the same invoice or system integrations malfunction.

Mispostings occur when amounts land in the wrong account. A $5,000 payment posted to Account 1010 instead of Account 1020 creates reconciling items in both accounts.

Classification errors include transposed digits (recording $1,450 as $1,540), incorrect amounts, or wrong transaction dates.

Intercompany & Foreign Transactions

Multi-entity organizations face unique reconciling items when subsidiaries or divisions transact with each other. Reconciling multiple accounts across subsidiaries or divisions adds complexity to the reconciliation process.

Intercompany transactions often post at different times in each entity’s books. Subsidiary A records a $100,000 transfer on March 31st, but Subsidiary B doesn’t record the receipt until April 1st.

Currency conversions create discrepancies when the same transaction is recorded at different exchange rates. Fluctuating rates mean different dollar amounts appear in each entity’s books.

When reconciling intercompany and foreign transactions, it is essential to maintain clear documentation to track adjustments, resolve discrepancies, and ensure compliance during audits.

Float Funds

Float represents money in transit due to payment processing delays. ACH payments may take 1-3 business days to clear, while wire transfers can show as debited before they're credited to the recipient's account, depending on processing times.

Why Do Reconciling Items Occur?

Reconciling items emerge from predictable friction points in financial processes, and are often identified and managed during the financial close process. Understanding these root causes helps you anticipate where discrepancies will appear.

• Delayed transaction processing creates natural gaps. Banks process deposits overnight and checks clear in 2-5 business days, while your accounting team records transactions when initiated. Internal approval workflows, batch processing schedules, and month-end cutoffs compound the timing differences, especially during the financial close.
• System mismatches between ERP and bank create discrepancies because they operate independently with different transaction codes and processing rules. Banks may aggregate multiple transactions into one statement line while your ERP records each individually. Rounding differences and integration gaps force manual reconciliation where automation should exist.
• Currency differences introduce exchange rate complexity. You record at the spot rate when initiated; the bank processes at a different rate days later. Multi-currency operations create discrepancies at each conversion point.
• Human error in data entry remains significant. Transposed digits, typos, forgotten bank fees, and duplicate submissions all create variances that multiply when multiple people touch the same transaction.
• High transaction volume magnifies every issue. A company processing 10,000 monthly transactions can’t manually review each one—even a 1% error rate produces 100 reconciling items to investigate. Manual reconciliation doesn’t scale and often discovers discrepancies weeks after they occur.

Regular monitoring of reconciling items, especially throughout the financial close process, prevents them from compounding into larger reporting issues.

Examples of Reconciling Items in Action

Real-world scenarios illustrate how reconciling items appear during your monthly close and what actions they require.

Deposits in Transit

Your company makes a $12,500 deposit—a cash transaction—on May 31st at 4:30 PM, recording it immediately in your company's books (general ledger). When you receive your May bank statement, it shows an ending balance of $87,300, but your GL shows $99,800. During reconciliation, you identify the $12,500 deposit in transit—the bank didn’t process the deposit until June 1st due to their cutoff time.

Resolution: Document the deposit in transit on your May 31st bank reconciliation. No journal entry needed. When you reconcile June’s statement, verify the $12,500 appears and clears this reconciling item.

Outstanding Check

On March 28th, you write check #1847 for $3,200 to a vendor and record it in your books, reducing your cash balance to $52,100. Your March 31st bank statement shows $55,300 because the vendor hasn't cashed the check yet. During reconciliation, you identify the outstanding check as a $3,200 reconciling item.

Resolution: List the outstanding check on your bank reconciliation with the check number, date, payee, and amount. No journal entry required. Track it monthly until it clears—if it remains outstanding for 90+ days, contact the vendor to determine if they received it.

Unrecorded Bank Fee

While reconciling your operating account, your GL shows $48,500 but the bank statement shows $48,475. Reviewing the statement details, you discover a $25 monthly maintenance fee you didn't record in your books.

Resolution: Record a journal entry debiting Bank Fees (expense) and crediting Cash for $25. This corrects your GL balance to match the bank statement. Update your close checklist to record recurring monthly fees proactively to avoid this reconciling item in future months.

NSF Check

You deposited a $5,000 customer check on May 15th and recorded it as cash received. Your May 31st GL balance shows $63,400, but your bank statement shows $58,400. Reviewing the bank activity, you find the check was returned on May 28th for insufficient funds—the bank reversed the $5,000 deposit.

Resolution: Record a journal entry debiting Accounts Receivable and crediting Cash for $5,000 to reverse the deposit. Contact the customer to request payment by another method. Your cash balance now matches the bank statement at $58,400.

Data Entry Error

During reconciliation, your GL shows $76,100 while the bank statement shows $76,010. You discover you recorded a vendor payment as $1,100 when the actual check amount was $1,010—a transposition error. This $90 discrepancy is throwing off your entire reconciliation.

Resolution: Record a correcting journal entry debiting Cash for $90 (to increase it) and crediting Accounts Payable for $90 (to restore the liability). Your GL cash balance now matches the bank at $76,010. Review your data entry procedures to prevent similar errors, such as implementing dual verification for amounts over $1,000.

How to Resolve Reconciling Items Effectively

A systematic approach accelerates your close and maintains accurate records.

The Resolution Process

1. Identify the item. Compare your GL to the source document and flag variances. Note the amount, date, and affected account.
2. Investigate the source. Review transaction details, supporting documentation, and related accounts. Determine if it’s a timing difference, unrecorded bank transaction, or error.
3. Maintain clear documentation throughout the reconciliation process. Record what caused the discrepancy, how you verified it, and what action you took. Keeping an organized audit trail supports compliance, improves transparency during audits, and helps spot patterns.
4. Post corrections when needed. Permanent reconciling items require journal entries. Temporary timing differences get documented without entries.

Note: Segregation of duties is a key internal control in the reconciliation process. Assigning different people to handle recording, reviewing, and approving reconciliations helps prevent fraud and errors.

Best Practices

1. Set materiality thresholds. Establish thresholds based on account size and risk—perhaps $50 for operating accounts or 0.5% of account balance. Immaterial variances below the threshold get documented but don’t delay the close.
2. Assign clear ownership. Each reconciling item needs someone responsible for resolving it. Use reconciliation software or tracking spreadsheets to assign items, set due dates, and monitor progress. Escalate items unresolved for more than 5 business days.
3. Use standardized checklists. Create investigation steps for common reconciling item types. Standardization reduces errors and training time.
4. Maintain comprehensive audit trails. Document variance amount, date identified, root cause, supporting evidence, resolution method, and investigator. Store everything centrally for auditors and future reference.
5. Perform monthly reconciliations. Conducting monthly reconciliations ensures accurate financial records, helps detect errors or fraud early, and maintains control over cash flow.
6. Ensure consistent reconciliation for compliance. Regular and consistent reconciliation meets internal controls and external audit or regulatory requirements, reducing the risk of penalties.
7. Provide staff training. Offer training for staff on common issues and error prevention to help reduce the number of reconciling items.
8. Leverage automated reconciliation tools. Use automated reconciliation tools to align transactions in bank statements or internal ledgers and reduce manual labor.
9. Review patterns monthly. If the same types appear repeatedly, address the underlying process issue. Recurring unrecorded fees? Set up recurring journal entries. Frequent timing differences? Align posting schedules.

Risks of Ignoring Reconciling Items

Unresolved reconciling items create financial reporting risks that compound over time:

• Misstated financials: Every unresolved item represents an inaccuracy. A $5,000 unrecorded bank fee understates expenses and overstates net income. Individual $50 discrepancies may seem immaterial, but 100 of them total $5,000—accumulated immaterial items become material in aggregate.
• Audit red flags: Auditors scrutinize reconciliations because unresolved items signal control weaknesses. External auditors expand testing when reconciliations show poor quality, meaning higher fees, longer fieldwork, and potential qualified opinions.
• Regulatory non-compliance: Public companies under SOX must certify internal control effectiveness. Persistent unresolved items can escalate to material weaknesses requiring public disclosure—triggering regulatory scrutiny, shareholder lawsuits, and potential delisting.
• Hidden cash flow issues: Outstanding checks that never clear might indicate missing payments or fraud. When variances accumulate, you lose visibility into actual cash positions, undermining cash management and forecasting.
• Erosion of stakeholder trust: Unresolved items that surface during board meetings or loan reviews erode confidence quickly. Restating financials compounds the trust problem and signals control failures.

The goal isn't perfection—it's demonstrable control over your financial reporting process. Document immaterial items, track aging, and investigate patterns that might indicate larger control weaknesses.

How Automation Simplifies Reconciliation

Manual reconciliation consumes days of staff time each month. Downloading statements, exporting reports, and comparing thousands of line items is slow, error-prone, and makes audit-ready documentation difficult to maintain.

Automation is especially valuable for organizations with complex financial operations or high transaction volumes, where managing and reconciling large-scale financial data can be particularly challenging.

Modern reconciliation platforms automatically flag discrepancies in real-time as transactions flow through systems. Real-time synchronization with ERP and bank feeds eliminates manual data transfers—the software matches transactions based on configurable rules and highlights only exceptions requiring investigation.

Automated systems track unresolved items over time, aging them by days outstanding and escalating those exceeding thresholds. Standardized audit trails generate automatically, documenting who investigated each item and how it was resolved.

Tools like Solvexia streamline the entire workflow from data ingestion through resolution to final sign-off, reducing manual effort while improving accuracy. For finance teams on tight deadlines, automation converts reconciliation from a manual burden into a controlled, efficient process.

Final Thoughts: Turning Reconciliation from Risk to Strength

Reconciling items are unavoidable, but they don’t have to compromise your financial accuracy or derail your close. The reconciliation process is a fundamental internal control that supports healthy cash flow and financial accuracy. Understanding what reconciling items are, why they occur, and how to resolve them systematically transforms reconciliation from anxiety into strength.

As transaction volumes grow and your financial close process becomes more complex, automation becomes essential. Platforms handle the matching, flagging, and tracking—letting your team focus on exceptions requiring judgment rather than routine data comparison, and streamlining workflow management across multiple accounts.

Ready to accelerate your reconciliation process? Explore how Solvexia can streamline your workflow with intelligent automation that scales with your organization.