## **Learning Outcomes**

After reading this article, you will be able to explain the purpose and process of reconciliation in accounting, document the outcomes of reconciliations, and identify how to address and record discrepancies. You will understand how to comply with best practices when producing, checking, and retaining reconciliation documentation, as expected for the ACCA FA1 exam.

## **ACCA Recording Financial Transactions (FA1) Syllabus**

For ACCA Recording Financial Transactions (FA1), you are required to understand how reconciliations support error detection and control over accounting records. In particular, focus on:

- The purpose and value of reconciliations for management and accuracy
- The process for reconciling cash records against bank statements and supplier accounts
- Documenting reconciliation outcomes and actions taken to address identified discrepancies
- Understanding how reconciliation documentation fits into broader internal controls and audit trails

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. What information should be included when documenting the outcome of a bank reconciliation?
2. Who should sign off or approve reconciliation documentation and why?
3. If a discrepancy is found during supplier account reconciliation, what steps must be taken and how should the outcome be documented?
4. What is the main reason for retaining reconciliation documentation for several years?

## **Introduction**

Ensuring the accuracy of financial records is a key responsibility in any business. Reconciliation – the process of matching internal accounting records to external documents such as bank statements or supplier statements – plays an essential role in this. Accurate documentation of reconciliation outcomes not only confirms the integrity of the records but also provides important evidence in case of queries or audits. This article explains how to prepare and retain proper documentation when undertaking reconciliations, an area often tested in the ACCA FA1 exam.

## Purpose of Reconciliation Documentation

Every time a reconciliation is performed, the result—whether agreement or discrepancy—must be documented. This documentation creates a clear audit trail, helps track unresolved items, and ensures management can review and approve corrective actions taken.

> **Key Term: reconciliation**
> The process of comparing two sets of records to ensure they are in agreement and identifying any differences to be investigated or corrected.
>
> **Key Term: reconciliation documentation**
> Written evidence, such as a statement or report, showing the comparison between internal accounting records and external statements, including explanations for any discrepancies and actions taken.

## What Should Be Documented

A well-prepared reconciliation document must include the following items:

- The date the reconciliation was performed
- The person(s) responsible for preparing and checking the reconciliation
- Details of the accounts or documents being reconciled (e.g., bank statement date, supplier name)
- The closing balances per internal records and external documents
- A list and explanation of any outstanding items (such as unpresented cheques, outstanding lodgements, or unrecorded invoices)
- A description of any discrepancies found, along with the cause, corrective action taken, and the date resolved
- Approval or sign-off by an authorised person

Accurately recording these elements ensures the business has a complete record of how and when account balances were checked, which is essential for both day-to-day control and later review by auditors or regulators.

## Who Should Approve Reconciliation Outcomes

All reconciliations, especially those involving key accounts such as cash or payables, should be reviewed and approved by someone other than the preparer. This may be a supervisor, manager, or another staff member who is not directly responsible for the account in question, as part of the segregation of duties.

> **Key Term: segregation of duties**
> The division of responsibilities among different people to reduce the risk of error or fraud, especially in the recording and checking of transactions.

## How to Record and Resolve Discrepancies

When a difference is found, record:

- The nature and amount of the discrepancy
- A brief explanation of the likely cause (e.g., error in data entry, timing difference, omitted transaction)
- The action taken to correct the error (such as adjusting a ledger entry or contacting the bank or supplier)
- The date the correction was implemented
- The initials or signature of the person authorising the correction

This level of detail proves that the business has investigated and addressed issues professionally and promptly, which helps protect against further problems.

### **Worked Example 1.1**

**A cash book shows a bank balance of \$2,300 at 31 March. The bank statement on that date shows \$2,080. The reconciliation uncovers an unpresented cheque (\$320) and an error in the cash book, where a deposit of \$100 was omitted. How should the reconciliation outcome be documented?**

> **Answer:**  
> The reconciliation statement should show:
>
> - Cash book balance at 31 March: \$2,300
> - Add: Omitted deposit not yet recorded in the cash book: \$100
> - Less: Unpresented cheque: \$320
> - Adjusted cash book balance: \$2,080 (matches bank statement)
>   The preparer must note the omission, add a correcting entry in the cash book for the deposit, and record that action and date taken. The reconciliation should be signed by both the preparer and an authorised reviewer.

### **Worked Example 1.2**

**You reconcile a supplier ledger account showing a balance payable of \$1,150 with the supplier's statement, which shows an outstanding balance of \$1,400. You discover an unrecorded invoice for \$250. What next?**

> **Answer:**  
> Document the difference and its cause, then enter the missing invoice in the purchases ledger, updating the balance to \$1,400. Record the original error, the corrective entry, and the date of correction. The reconciliation and correction should be signed off.

### **Exam Warning**

> Forgetting to document the reason for a discrepancy or failing to record how it was resolved may result in lost evidence and confusion during audits. Always provide clear references to supporting documents or communications related to corrections.

## Retention and Security of Reconciliation Records

Reconciliation records have both practical and legal value. Businesses must keep this documentation for several years—typically no fewer than three and often up to six years—depending on local regulations and company policy. Always store these records securely, whether in physical files or digital format, with restricted access to authorised staff.

> **Key Term: audit trail**
> The clear, chronological record created by documentation and records that enables the tracing of transactions and corrections within accounting systems.

## Using Reconciliation Documentation in Internal Control

Documented outcomes of reconciliations are an important control feature. Management and auditors review them to check that controls are operating effectively and that errors or irregularities are identified and addressed quickly.

> **Key Term: internal control**
> The procedures and processes designed to safeguard assets, ensure accuracy of accounting records, and improve operational efficiency.

## **Summary**

Documenting reconciliation outcomes is essential for maintaining accurate and complete accounting records. Each reconciliation should clearly show the balances compared, discrepancies found, actions taken, and appropriate sign-offs. This ensures a reliable audit trail and forms a key pillar of effective internal control.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Identify the components of clear reconciliation documentation
- Understand the need for reconciliation approval and sign-off
- Record discrepancies and corrective actions taken
- Retain reconciliation outcomes securely for audit and legal requirements
- Recognise how reconciliation documentation supports overall internal control

## **Key Terms and Concepts**

- reconciliation
- reconciliation documentation
- segregation of duties
- audit trail
- internal control

Reconciliation procedures and checks - Documenting reconciliation outcomes