Definition:
In a financial context, reconciliation means getting the cash line on a company’s balance sheet to match the actual cash the company has in the bank – sort of like balancing your checkbook, but on a larger scale.
Book Excerpt:
(Excerpts from Financial Intelligence, Chapter 18 – How Cash Connects with Everything Else)
To reconcile profit and cash we start with net profit for this reason: if every transaction were completely in cash, and if there were no noncash expenses such as depreciation then net profit and operating cash flow would be identical. But since in most businesses everything isn’t a cash transaction, we need to determine which line items on the income statement and the balance sheet had the effect of increasing or decreasing cash – in other words, making operating cash flow different from net profit.
