Reconciliation
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 non-cash 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.