# Account Reconciliation Policy: What to Put in Writing

- Author: PreciseBankFlow (https://precisebankflow.com)
- Published: 2026-10-17
- Category: Account reconciliations
- Canonical: https://precisebankflow.com/blog/account-reconciliation-policy

> What an account reconciliation policy should say: which accounts, how often, thresholds, preparer and reviewer roles, aging rules and escalation.
An account reconciliation policy is the written rule set for reconciling balance sheet accounts. It names which accounts are reconciled, how often and by what deadline, the thresholds above which differences must be explained, who prepares and who reviews, how long open items may age, and who is told when an item breaks those limits.

## What should an account reconciliation policy cover?

A complete account reconciliation policy covers eight things: purpose, scope, the account schedule with frequency and deadlines, standards of evidence, thresholds for explaining differences, preparer and reviewer roles, aging and escalation rules for open items, and how reconciliations are stored. Each section should be short enough that a new bookkeeper can follow it without asking.

A policy works when it removes decisions from the month-end rush. Without one, each preparer decides how much detail is enough, which differences can wait and whether a review is needed this month. The answers drift, and the drift is invisible until something goes wrong.

The core sections, in a sensible order:

1. **Purpose.** One or two sentences: every balance sheet account is supported by evidence and reviewed on a fixed schedule.
2. **Scope.** Which entities and which accounts the policy applies to.
3. **Account schedule.** The list of accounts with risk rating, frequency, due date and reviewer.
4. **Standards of evidence.** What a finished reconciliation must contain.
5. **Thresholds.** When a difference must be explained, corrected or escalated.
6. **Roles.** Preparer, reviewer and approver, and what each signature means.
7. **Aging and escalation.** How long items may stay open and who is told.
8. **Retention.** Where reconciliations and evidence are stored and for how long.

The standard of evidence deserves one paragraph in the policy. A finished reconciliation shows the ledger balance, the balance per the outside or independent source, a list of reconciling items each with a date and support, and an unexplained difference of zero or within threshold. For what that independent source is for each type of account, see [account reconciliation meaning, with examples by account](/blog/account-reconciliation-meaning).

## Account reconciliation policy scope: risk ratings and frequency

The scope section of an account reconciliation policy assigns each balance sheet account a risk rating, then sets the frequency from that rating. High-risk accounts, such as cash and receivables, are reconciled every month. Low-risk accounts with little activity may be reconciled quarterly or at year end. The rating, not habit, drives the schedule.

Rate each account on a few plain factors:

- **Size of the balance** compared with the company's results.
- **Volume of activity.** Many transactions mean more chances for error.
- **Judgment involved.** Reserves and accruals rest on estimates.
- **Fraud exposure.** Accounts that touch cash or that can hide a payment.
- **History.** Accounts that have had problems before.

The sample schedule below shows how this might look for a small company. All values are examples.

| Account (example) | Risk | Frequency | Due | Threshold | Reviewer |
| --- | --- | --- | --- | --- | --- |
| Operating bank account | High | Monthly | Day 5 | 0.00 unexplained | Controller |
| Accounts receivable | High | Monthly | Day 7 | 250.00 | Controller |
| Accounts payable | High | Monthly | Day 7 | 250.00 | Controller |
| Payroll liabilities | Medium | Monthly | Day 8 | 100.00 | Controller |
| Prepaid expenses | Medium | Monthly | Day 10 | 500.00 | Finance manager |
| Fixed assets | Medium | Quarterly | Day 15 | 1,000.00 | Finance manager |
| Lease liability | Medium | Quarterly | Day 15 | 500.00 | Controller |
| Security deposits paid | Low | Yearly | Day 20 of year end | 500.00 | Finance manager |

Cash gets a zero threshold for unexplained differences because bank records are exact. Accounts built on schedules, such as leases, can be reconciled less often when activity is steady. Lease balances follow their own calculation, which is set out in the [lease liability reconciliation under ASC 842](/blog/lease-liability-reconciliation).

Review the ratings once a year, and whenever the business changes in a way that matters: a new bank account, a new system, a new revenue stream. An account that was low risk when dormant becomes high risk when activity starts.

## Reconciliation policy thresholds for explaining differences

A threshold in a reconciliation policy is the amount below which an unexplained difference may be carried or written off without further work, and above which it must be investigated and resolved. Set thresholds per account, in amounts and sometimes as a percentage of the balance, and never use them to excuse a difference in cash.

Thresholds save time on accounts where a few dollars of rounding or timing do not matter. They become a problem when used to skip real work. A sound policy separates three ideas:

- **Explanation threshold.** Differences above this amount must be investigated and explained on the reconciliation.
- **Correction threshold.** Explained differences above this amount must be corrected by entry in the current period.
- **Escalation threshold.** Any single item above this amount, explained or not, is reported to the reviewer's manager.

Tie the amounts to the size of the business. A threshold that makes sense for a company with large monthly results is far too loose for a small one. The person who signs the financial statements should approve the figures, and the policy should say so.

Two rules belong next to every threshold. First, small differences that recur month after month must be investigated even if each is under the limit, because together they may be large. Second, a difference of any size that looks like fraud is escalated at once.

## Preparer and reviewer roles in a reconciliation policy

The roles section names who prepares each reconciliation, who reviews it, and what each signature confirms. The preparer confirms that the work is complete and supported. The reviewer confirms that it was checked, that the conclusions are reasonable and that open items are being followed up. The two should be different people.

The policy should also say what a reviewer actually does, so the signature means the same thing every month:

1. **Agree the ledger balance** on the reconciliation to the trial balance.
2. **Agree the outside balance** to the source document, such as the bank statement or subledger report.
3. **Scan the reconciling items** for age, size and anything unusual.
4. **Test a few items** against their support.
5. **Check that last period's open items** were cleared or carried with a reason.
6. **Sign and date.**

Segregation of duties matters most for cash. The person who records receipts or makes payments should not be the one who reconciles the bank account, and the reviewer should not be the person whose work is being checked. In a very small business that is not always possible, which the last section addresses.

Systems can enforce part of this. Many accounting systems keep a record of who completed a reconciliation and when, and some, like the tools covered in [Sage bank reconciliation for Sage 50 and Sage Intacct](/blog/sage-bank-reconciliation), store the reconciliation report so it can be retrieved later. The policy should say where those reports live.

## Aging and escalation rules for open reconciling items

Aging rules set how long a reconciling item may stay open before something must happen to it. Escalation rules say who is told and what that person must decide. Together they stop reconciliations from carrying the same stale items for years, which is one of the most common ways small errors become large ones.

An example rule set:

| Age of open item (example) | Required action |
| --- | --- |
| 0 to 30 days | Normal; listed with a reason |
| 31 to 60 days | Note what has been tried and the expected clearing date |
| 61 to 90 days | Reviewer decides on correction, write-off or further work |
| Over 90 days | Reported to the controller or owner with a decision by next close |

Age each item from the date it first arose, not from the date of the reconciliation it sits on. An outstanding check, an unapplied customer payment and an unidentified bank debit each start their clock on their own transaction date. The [accounts receivable reconciliation template with aging](/blog/accounts-receivable-reconciliation-template) shows how unapplied cash and credit memos are tracked this way for receivables.

Write-offs need their own line in the policy: who can approve them, up to what amount, and what evidence must be kept. A write-off without approval is just an unexplained difference moved to a different account.

Tools help with the cash side. [PreciseBankFlow](/) produces an exception report for each statement, listing differences, duplicates and gaps with their evidence, which gives the reviewer a dated list of open items to age.

## How strict should a small firm's reconciliation policy be?

A small firm's reconciliation policy should be as strict as its risks require and no stricter. A business with one bank account, a dozen customers and an outside accountant may need only a one-page policy: monthly bank and card reconciliations, quarterly reviews of everything else, and the owner reviewing the bank work.

A heavy policy that nobody follows is worse than a light one that is followed every month. Signs a policy is too heavy for the business include reviews signed in batches months later, reconciliations copied forward with only the date changed, and thresholds so low that every account fails every month.

Where segregation of duties is not possible because one person does all the bookkeeping, the policy should add compensating steps:

- **The owner reviews bank statements directly,** before the bookkeeper's reconciliation, and initials them.
- **An outside accountant reviews** the reconciliations quarterly.
- **Online banking access is split,** so the bookkeeper can view and prepare payments but not approve them.

There are also times not to relax. When the business takes on debt with reporting covenants, prepares for an audit or a sale, adds a new location, or discovers an error, the policy should tighten for at least the next few closes. Write that trigger into the policy itself, so tightening does not depend on someone remembering.