Account reconciliation is the process of comparing transactions you have recorded for a financial account against a monthly statement from a bank, credit card or other financial institution to ensure that your account records are identical.
If you're not using personal finance software, the record of your transactions would likely be in a paper register that you keep updated, like a check register.
If you're using personal finance software, your transaction records are in the form of your account registers.
Taking the time to compare transactions and balances is worthwhile because it will help avoid overdrafts on cash accounts or going over your limit on credit cards. This will save you from having to pay some very high over-limit and overdraft fees.
Reconciling accounts and comparing transactions also helps you discover errors in transactions, duplicate charges and fraudulent activity. Credit card companies won't hold you responsible for fraudulent charges, but people who skip reconciling or at least looking over each account statement can lose a lot of money over time when small unauthorized charges are made frequently by criminals.
Most banks will forgive amounts drawn on your account if someone steals your checks and you report the activity quickly, but this is not always the case with ATM cards.
Reconciling your accounts every month is the best way to avoid these expenses.
When you use personal finance software to reconcile accounts, the software does all the work for you, saving you a lot of time. Most online personal finance software reconciles accounts.
While using software to reconcile accounts is recommended, it's a good idea to understand the process: