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Unreconciled Transaction

Updated on April 4, 2024
Article byPrakhar Gajendrakar
Edited byPrakhar Gajendrakar
Reviewed byDheeraj Vaidya, CFA, FRM

Unreconciled Transaction Meaning

An unreconciled transaction is the one that creates a discrepancy between the recorded transaction in a company’s internal records and the corresponding entry in external documents, such as bank statements. This discrepancy indicates an inconsistency or error that needs to be resolved through the reconciliation process to ensure accurate financial reporting and detection of potentially fraudulent activities.

Unreconciled Transaction

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From time to time, banks, businesses, and other financial institutions perform a reconciliation process on every account. It is done to ensure that every transaction is recorded correctly. The process is common in banks to come across unreconciled transactions that are later rectified. It mostly happens due to late check deposits, untimely credit card bill payments, etc.

Key Takeaways

  • Unreconciled transactions are those account activities that do not match with the bank at the time of reconciliation.
  • It is a common aspect in banks and businesses and is rectified to ensure no additional follow-up or balance disagreement occurs.
  • On the contrary, there are two types of reconciliation processes – business and personal, to identify frauds, eliminate accounting mistakes, and rectify the general ledger.
  • It can be reduced depending on the intervals reconciliation is practiced.

Unreconciled Transaction Explained

An unreconciled transaction pertains to a scenario where a disparity exists between the recorded transaction in a company’s internal records and the corresponding entry in external documents, such as bank statements. It occurs when transactions must be appropriately aligned or verified during reconciliation. The unreconciled transactions report provides a comprehensive overview of all outstanding transactions yet to be reconciled.

Proper reconciliation is crucial to detect and rectify such discrepancies, ensuring accurate financial reporting and minimizing the risk of fraud or financial loss. When such a transaction occurs, it induces a need for investigation to locate the cash flow. Otherwise, it will be considered a loss because the accounts and financial statements cannot find the amount.

Primarily such transactions typically occur when businesses accept credit card payments and the processor takes one or two days to post the money in the account or when the checks are written for a specific date and not cashed by the party on that particular date, also depending on the time that varies in check clearance. Deposits were posted near the month’s end but were taken to the bank in the next month.

Not every difference in account balance refers to fraud or account manipulation. Still, it is simply a time gap between deposits and payments, but without reconciliation, there would be no proper verification of accounts, and there is a considerable risk of fraud and malicious activities that tend to bring substantial monetary loss to either party involved.

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Examples

Let us look at the following examples to understand the concept better:

Example #1

Suppose Ryan uses a double-entry accounting system to understand an unreconciled transaction. It makes both debit and credit entries, i.e., one account gets a debit, and the other receives a credit. Ryan starts a car washing business. Ryan uses $1800 of his savings to fund his business. He uses it to buy car washing equipment and to complete his first service (first car to wash).

Ryan uses a double-entry accounting system. He credits $1800 cash and debits his equipment (asset) of the same amount. Ryan credits $450 in revenue for his first job and debits the same amount for accounts receivable. Both his credits and debits are reconciled and equal the same.

AccountDebitCredit
Cash$1800
Car washing equipment$1800
Revenue$450
Accounts receivable$450

It is primarily a depiction of a reconciled transaction. The account balance on both sides is the same and matches, but if it didn’t, it would notify an unreconciled transaction, and Ryan had to perform personal reconciliation to ensure the money was not missing.

Example #2

Scott runs a brokerage firm with several brokers working under his company. Every month Scott performs a reconciliation to ensure that the money allotted to brokers and investors in their margin accounts and other trading purchases are correctly recorded, and each transaction matches the general ledger.

Often happens that the capital deposited or repaid by an investor with interest would not check the account balance. However, it is expected due to mismatched timing, deposits, and mysterious discrepancies. It is Scott’s responsibility to ensure that the balance should match or else it will indicate fraud and investigation of money loss.

Earlier, Scott used to check books and followed a single-entry accounting system and had to reconcile the missing amount matching different transactions, and it was a time-consuming process. Recently, he switched to the double-entry accounting system.

Therefore, each transaction is posted as credit as well as on the debit side. Overall, the information provided presents a realistic scenario and accurately portrays the role of reconciliations in detecting discrepancies and ensuring financial integrity.

Unreconciled Transaction vs Cleared Transaction vs Void Transaction

Unreconciled, cleared, and void transactions are terms used in financial accounting to describe different states or statuses of transactions. Let’s understand further:

  • Unreconciled transactions refer to discrepancies or mismatches between a company’s internal and external records, which can include checks not received by the bank but extend beyond that. Cleared transactions indicate completed and approved transactions, while void transactions signify canceled or invalidated transactions before processing.
  • Unreconciled transactions can raise concerns and trigger investigations that involve both the account holder and the financial institution. With void transactions, the account holder is responsible for ensuring the validity of subsequent checks written.
  • Unreconciled transactions are a mismatch of records, clear transactions have precise entries in statements, and void transactions are not recorded.

Unreconciled vs Reconciled Transaction

Unreconciled and reconciled transactions are two different terms used in financial accounting to describe the status of transactions based on their alignment or verification with external records. Let’s discuss further:

  • Unreconciled transactions refer to transactions that do not adequately align or tally between a company’s internal records and external records, such as bank statements. On the other hand, reconciled transactions indicate transactions not successfully matched and verified between these records.
  • An unreconciled transaction means that the transaction does not agree with the corresponding entry on the bank statement. In contrast, a reconciled transaction appears correctly on the bank statement.
  • Unreconciled transactions can occur unintentionally due to various factors, such as errors, omissions, or timing differences. Reconciled transactions, however, are a primary objective in accounting, aiming for accurate alignment and verification.
  • Unreconciled transactions lead to a mismatch between the account balance and the balance reflected on the bank statement. In comparison, reconciled transactions result in the account balance matching the balance indicated on the bank statement.

Frequently Asked Questions (FAQs)

1. How do you find unreconciled transactions in QuickBooks?

The process of finding unreconciled transactions in QuickBooks is as follows –
– Go to reports
– Open unreconciled transactions under the cash reports section
– Choose the bank account and enter the report date
– Check details of the unreconciled transactions
– If needed, the report can be exported to Excel to save and print in pdf or CSV format

2. How to delete unreconciled transactions?

Businesses and other firms widely use multiple accounting software to record, track, and analyze transactions and other accounting purposes. Each software has its interface and steps to delete unreconciled transactions. In general accounting practices, an investigation is done to seek the actual cause, and based on that, the reconciliation process of transactions is resolved.

3. How to clear unreconciled transactions from previous years after reconciling?

Again, it is an available option in the accounting tools and software to visit old transactions and select specific ones to delete from the history. The process and steps may differ depending on the software used, but clearing off earlier unreconciled transactions is possible.

This article has been a guide to Unreconciled Transaction & its meaning. We explain it with its examples, and comparison with clear, void, & reconciled transactions. You may also find some useful articles here –