In accounting, what is reconciliation of accounts?

Introduction / Context:
Reconciliation is a fundamental control activity in accounting. Its purpose is to ensure that different records which should show the same underlying financial information actually agree. When discrepancies arise, reconciliation helps identify errors, omissions or timing differences. This question examines whether you know the general definition of reconciliation as used in bank reconciliation, vendor reconciliation, customer reconciliation and other similar procedures.

Given Data / Assumptions:
- The term being defined is reconciliation. - We are working in a general accounting context. - Options describe comparison of records, recording petty cash, issuing invoices and preparing bank statements. - We must choose the option that best captures the essence of reconciliation.

Concept / Approach:
Reconciliation means comparing two sets of records that relate to the same account or transaction stream and ensuring that the balances agree. For example, in bank reconciliation, the cash book maintained by the company is compared with the bank statement issued by the bank. Any differences are investigated and explained by timing differences, bank charges, errors or omissions. Similarly, vendor reconciliation compares the company's payable ledger with the vendor's statement. The key activities are comparison, identification of differences and taking corrective actions such as adjustments or corrections. Recording petty cash, issuing invoices and preparing bank statements are separate accounting functions, but they are not the reconciliation itself.

Step-by-Step Solution:
Step 1: Focus on the key idea that reconciliation deals with agreement between two records. Step 2: Examine option A, which talks about comparing two sets of related records and resolving differences. This matches the concept exactly. Step 3: Recognise that recording petty cash involves journal entries, not necessarily comparison between two independent records. Step 4: Note that issuing invoices and preparing bank statements are transactional or reporting tasks, while reconciliation is a control procedure performed after these records exist.

Verification / Alternative Check:
Think of common reconciliations you may have studied: bank reconciliation, vendor reconciliation, customer account reconciliation and intercompany reconciliation. In all these cases, two separate records are compared, and variances are identified and resolved. This repeated pattern across different types of accounts confirms that reconciliation is about comparison and correction, not about basic recording or reporting activities.

Why Other Options Are Wrong:
Recording daily petty cash expenses: This is a bookkeeping task relating to cash expenses, not a reconciliation process. Issuing invoices to customers: This is part of the sales cycle and generates source documents; reconciliation may later involve these invoices but is not the same thing. Preparing bank statements for customers: Bank statements are generated by banks to summarise account activity; reconciliation uses them but does not refer to their preparation.

Common Pitfalls:
Learners may think that reconciliation is a term used only for bank reconciliation. In reality, it is a broader concept applied wherever two sets of independent records exist for the same balances. Another pitfall is assuming reconciliation is merely listing differences. A proper reconciliation not only lists the differences but also explains them and, where necessary, results in adjustments to correct the records.

Final Answer:
The correct option is The process of comparing two sets of related records and resolving any differences, because this definition matches the core meaning of reconciliation in accounting control procedures.