A Complete Guide to the Balance Sheet Reconciliation Process
Book a 30-minute call to see how how to pay yourself as a business owner our intelligent software can give you more insights and control over your data and reporting. The software provides digestible and customizable dashboards so stakeholders and management can understand the status of reconciliation at any point in time. Since there’s a fair explanation for why the balances don’t match, it’s nothing to be overly concerned about. However, if there wasn’t a discount granted, then there would need to be further investigation to understand and remedy the differences. Modern accounting technology has changed the way so many people do their work, especially as we’ve been tasked with adopting a virtual workplace over the course of the last year.
Manual processes:
The adoption of balance sheet reconciliation software has helped countless companies settle their accounts or close them in time before filing for that assessment period. Let us understand the other advantages of this necessary function of accounting through the discussion below. As the last step, ensure that the ending balance on the general ledger matches the supporting documents, and resolve any discrepancies. Also, document the findings and results, by creating a report or summary, so that controllers, auditors, and other professionals can track the changes. This will also aid future reconciliations by identifying and documenting recurring issues.
- The accounts team now needs to investigate various documents to identify the reason for the discrepancy and make the necessary adjusted journal entries to ensure that the subledger and general ledger balances match.
- As talented as your team is, manual errors are inevitable when working with data by hand.
- Regulatory compliance and audits are also another concern, especially when it comes to account reconciliation.
- Therefore, your accounting team can be freed up to focus their time on human analytical tasks, rather than back-office transactional maintenance.
What is the difference between account reconciliation and balance sheet reconciliation?
Data is frequently spread across various sources, tools, and spreadsheets, making comparing general ledger items with the source documentation difficult. Then over time as the company matures, aim to increase the percent of accounts reconciled to ensure full confidence in your balance sheet. As a core part of the month-end close, it’s necessary to understand both the importance of balance sheet reconciliation and how to effectively perform each step of the process. If the general ledger balance doesn’t match the supporting documentation, that’s ok and common. These differences are called reconciling items, and you’ll need to lease accounting for escalating rent payments or rent holidays understand what they are. When cross-checking information on your balance sheet with financial documentation, be on the lookout for discrepancies.
Having accurate and comprehensive records helps in cross-verifying transactions and balances. Without these documents, reconciliation becomes guesswork, leading to potential errors. To make sure your reconciliation process goes smoothly, follow the checklist below. Reconciling your balance sheet lets you verify that all of finding your true cost of goods manufactured your entries are recorded and classified correctly.
However, generally accepted accounting principles (GAAP) require double-entry bookkeeping—where a transaction is entered into the general ledger in two places. When a business makes a sale, it debits either cash or accounts receivable on the balance sheet and credits sales revenue on the income statement. No matter what role you play in your accounting team, you know that there are no way around account reconciliations and balance sheet reconciliations.
Free Up Time and Reduce Errors
In the example given above, we see a discrepancy of $45,000 between the subledger balance and the GL balance. The accounts team now needs to investigate various documents to identify the reason for the discrepancy and make the necessary adjusted journal entries to ensure that the subledger and general ledger balances match. This includes cash accounts, accounts receivable, accounts payable, inventory accounts, and any other balance sheet accounts that require reconciliation. In single-entry bookkeeping, every transaction is recorded just once rather than twice, as in double-entry bookkeeping, as either income or an expense.
This way, you can prioritize your efforts and focus more on high-risk accounts to enhance the accuracy of your financial reports over time. Fortunately, there are tools on the market today that can automate many aspects of the financial close. Some offer auto reconciliation, which can save companies a great deal of time – often days – without compromising the integrity of the data. The biggest challenge in the reconciliation process is consolidating all the information you need.
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