Hi, I'm Kip Twitchell. I'm at the Dallas Fort Worth International Airport today waiting for flight later tonight. I thought in this episode of conversations with Kip, I talked a little bit about posting and reconciliation. Posting is a process that's existed for centuries. We don't think much about it anymore. But it's a very important process, particularly in structured quantitative data.

Reconciliation is something that comes because of the posting process as we create balances. So let's go into more detail about this process. You remember in our last episode, maybe we had these set of transactions, and we had produced these set of balances off those transactions. We're going to change our example to be a set of transactions for maybe a consumer to consumers to different customers, buying different kinds of things on two different days. Okay, the first step in establishing a posting process is to choose which posting period used to be the things were done yearly. Decades ago we did them quarterly common for financial systems in the last number of decades has been monthly.

There are some highly cyclical industries that need compatibility that do things weekly. More and more things are moving to daily. Some things are on an even hourly or minute by minute basis. For our example. Today, we're going to talk first about monthly, we're going to choose the monthly posting period. Once you choose the monthly period, you have to choose the posting key.

Posting key for our first balance file is what we want to keep track of and we're going to choose the customer as the posting key. We're going to keep track of these transactions and keep balances by customer. So then as we begin to post these transactions to the bank, As we can see that we're creating balances. And then we begin to update balances based upon the posting key. And we're going through first here through customer ABC, and posting all the ABC transactions. Then the next thing we're doing is we're going through customer XYZ and posting all the XYZ transactions.

At the end of the first day, customer ABC transactions have added up to 7988. Customer XYZ has added up to 2501. Then we'll move on to day two if we've selected a monthly posting period. We don't distinguish between days when we've picked a monthly posting period. So as we begin to post the ABC transactions into our balance file, it just increases the balances. Then we go through and do the same thing for Customer XYZ transactions.

So, at the end of our first and second day of the period, we have customer ABC has a balance now of 8612. Customer XYZ is 100 169 89. Now let's change our example and go to a daily posting period we'll contrast the monthly with a daily posting period. When we go with a daily posting period, we'll use the same key here of customer, you can see that we go through and do the same thing on the daily files. And we do the same thing. So at the end of the day when posting, the balances are exactly the same as they would have been on the first day of the month, under monthly posting process.

Okay, now when we get through the day to something different happens we add new records for a day to because our file is maintained by days. You can see so now we have added up and posted all the transactions for today into the balance master file. Now if we compare the two different posting processes, we can see the daily balances or we have twice as many of them as we have with the monthly balances. Because we posted a daily balance basis, the monthly balances could be made from these daily balances that we certainly added them together. Okay, now let's change and go back to our monthly posting period. So the monthly customer file to contrast it with a new posting key, a new master file maintained by merchant.

When we do this process, we start taking and posting our transactions by the merchant instead of by the customer. You can see that at the end of day one, we have balance and Those places where we had more than one transaction for the same merchant, we've added those values together. Then when we go to do day two, because this is a monthly file, you start increasing the values in the posted master file with the new transactions at the end of day two. This is what our balance file looks like. We have the customer balance master files both daily and monthly. If we didn't show this example, but we could do the same thing and create a daily merchant balance file, in addition to our monthly balance file, so we've been able to make all of these balances using posting processes off of the transaction detail, of course, that our daily files because they're of a lower level of detail, more frequent posting process, they could be used to accumulate to create them monthly files.

All of these though, of course, have been made with the set of transactions Let's talk about reconciliation from now you can see we take all the transactions over both days and add them up. And they equal the totals of the posted values for our monthly files. We can do the same thing for the dailies. Now we could go further on the dailies, though, we can also could do a reconciliation where we started to match the day one transactions against the the daily buckets in the master files. And the day two transactions against the daily buckets in the master files as well. You can start to see the number of possible reconciliation points begins to increase the more balances we make.

Okay, now let's go back for just a minute here though, when we talk about reconciliation, let's suppose that instead of just these two transactions, that something happened at the end of day two, where we recognized that we had a missed transaction of some sort that missed traffic action was on day one at 1pm. Now what this causes is it means that all of our balance files are incorrect. And we have to either post this transaction to all the balances, which in some cases can be start to become kind of difficult to do if certain things have happened against the balance files because there might have been changes, other types of aggregations that have happened and redoing those calculations can start to become cumbersome. This is the point where someone in the in the process who owns the accuracy of these master files, the balanced files might look something like this.

Next time we'll talk a little bit more about this daily cycle or the monthly cycle and the relationship of certain key balances to other balances. In our next conversation with Kevin