Statement reconciliation

Statement reconciliation: Statement reconciliation is the control that matches, per licensor and per agreement, the royalty statements a licensee has issued against the general ledger balances for that agreement's royalty expense and liability, and against the cash actually paid or credited against an advance. Each of the three legs should tie to the next; the reconciliation names every difference between them and classifies it as either a timing difference — a real amount in one leg and not yet in another for a reason the calendar explains — or an error, an amount no calendar explains. It runs at every period close for the period just stated, and at the contract-year boundary for the whole year, where it is the leg of the year-end royalty close an auditor will later repeat.

The timing-versus-error split is the whole point. Timing differences — a statement issued after the ledger cut-off, a payment in transit, a returns true-up accrued but not yet stated, a shortfall invoiced in the new year for the year just closed — carry forward with a date and an expected clearing event and clear on the next reconciliation untouched. Errors — a category stated at the wrong rate, a return credited to the wrong licensor, a payment applied to the wrong agreement, a deduction above the contractual cap — are corrected in the current period with attribution to the original one, and the correction rides on the next statement as a true-up. A reconciliation that carries an unexplained residue has not classified it, and an unexplained difference is what a royalty audit exists to find.