What Is Balance Sheet Reconciliation?

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For example, 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). While the definition of balance sheet reconciliation may be straightforward, the logistics can be a nightmare when all the tasks are being done manually. This is especially true as businesses grow, and accounting teams struggle to keep up with the pace of business.

• BlackLine is a high-growth, SaaS business that is transforming and modernizing the way finance and accounting departments operate.
• Ensuring your enterprise automation strategy includes a solution that can both address preparation steps, such as running reports and transforming data, as well as managing approvals and posting, is key to success.
• In our example, we’ll need to record journal entries with a debit of $2 for the interest revenue and a credit of $13 for the monthly service fee.
• Account reconciliation is particularly useful for explaining the difference between two financial records or account balances.
• When accountants “close the books,” they complete reconciliations of the balance sheet accounts.

The information on the bank statement is the bank’s record of all transactions impacting the entity’s bank account during the past month. On one level, balance sheet reconciliation is the comparison of the account’s general ledger trial balance with another source, be it internal, such as a sub-ledger, or external, such as a bank statement. But it can also involve substantiating the general ledger account by analyzing line items in the account. This is to make sure you have recorded and accounted for every transaction in your business – and applied the proper classification in the process.

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There’s no need to keep doing your balance sheet reconciliations manually when there are modern solutions that are sure to save you time, money, and restore your peace of mind. During the financial close, one of the most common and necessary steps is completing thorough balance sheet reconciliations. To sustain timely performance of daily activities, banking and financial services organizations are turning to modern accounting and finance practices. Centralize, streamline, and automate intercompany reconciliations and dispute management.Seamlessly integrate with all intercompany systems and data sources.

When a business receives an invoice, it credits the amount of the invoice to accounts payable (on the balance sheet) and debits an expense (on the income statement) for the same amount. When the company pays the bill, it debits accounts payable and credits the cash account. With every transaction in the general ledger, the left (debit) and right (credit) sides of the journal entry should agree, reconciling to zero. Once you’re done making these adjustments, calculate the revised balance and the amount in your books; the bank statement should be the same. If there’s an undocumented reconciling item, check if the difference pops up from a different period. If it’s only a small difference, adjust it and record the difference in your books.

When an account is reconciled, the statement’s transactions should match the account holder’s records. For a checking account, it is important to factor in pending deposits or outstanding checks. Accountants must reconcile credit card transactions, accounts payable, accounts receivable, payroll, fixed assets, subscriptions, deferred accounts, and other areas against the general ledger, or balance sheet. In our example, we’ll need to record journal entries with a debit of $2 for the interest revenue and a credit of $13 for the monthly service fee. A well-executed ‘fast close’ can bring many valuable benefits to the business, from improving organizational performance to propelling accounting executives from financial historians to trusted advisors. Your bank statement may have a higher balance than your ledger because of checks and other payments that haven’t hit the bank yet.

What Does Reconciliation Mean in Accounting?

We’re dedicated to delivering the most value in the shortest amount of time, equipping you to not only control close chaos, but also foster F&A excellence. Calculate and identify account balance and activity fluctuations automatically to continuously monitor for risk, ensure the effective and timely execution of critical management review controls, and support agile decision-making. Supporting documentation can include bank statements, subsidiary ledgers, and payment schedules. A reconciliation compares the balances in the general ledger with other supporting documentation to verify the accuracy of the general ledger balance.

Footing is a term used to add the values in the balance sheet to ensure that totals are accurate and that assets equal liabilities and equity. For example, if performing a monthly reconciliation, gather information from the current month, but also any information that impacts the current month’s financials but happened in a different period. The balance sheet reconciliation helps to ensure that all of the information on the balance sheet is verified and representative of fact. Before the closing process can typically begin, the information in the general ledger is verified against some type of supporting schedule or document. However, generally accepted accounting principles (GAAP) require double-entry accounting—where a transaction is entered into the general ledger in two places—and is the most prevalent tool for reconciliation.

Understanding Reconciliation

Certain university balance sheet accounts are reviewed and reconciled regularly by Financial Services personnel. Campus entities are not responsible for reconciling these university accounts, as opposed to department accounts. Every finance department knows how challenging it can be to perform a balance sheet reconciliation. Regardless of the budgeting approach your organization adopts, it requires big data to ensure accuracy, timely execution, and of course, monitoring.

By replacing spreadsheets with real-time data and integrating fragmented workbooks and data sources into one centralized location, you can work in the comfort of excel with the support of a much more sophisticated data management system behind you. Adjusting journal entries are used to reclassify transactions and in some cases entries might need to be added entirely. This reconciliation is done to ensure that the financial position of the company is being represented accurately. BlackLine partners with top global Business Process Outsourcers and equips them with solutions to better serve their clients and achieve market-leading automation, efficiencies, and risk control. By outsourcing, businesses can achieve stronger compliance, gain a deeper level of industry knowledge, and grow without unnecessary costs. Explore the future of accounting over a cup of coffee with our curated collection of white papers and ebooks written to help you consider how you will transform your people, process, and technology.

How To Perform A Balance Sheet Reconciliation

Modern accounting technology embeds automation into your processes, which reduces time spent on rote, manual tasks and frees your team to focus on higher value activities like analysis and explanations for exceptions or variances. Companies come to BlackLine because their traditional manual accounting processes are not sustainable. We help them move to modern accounting by unifying their data and processes, automating repetitive work, and driving accountability through visibility.

Of course, ensure you’re matching records for the same period for that particular account. Check that all outgoing funds have been reflected in both your internal records and your bank account. Whether it’s checks, ATM transactions, or other charges, subtract these items from the bank statement balance. Note charges on your bank statement that you haven’t captured in your internal records. Charges to watch for include uncleared checks, internally recorded auto-payments that haven’t cleared the bank account, check-printing fees, ATM service charges, and other bank charges such as insufficient funds (NSF), overdrafts, or over-limit fees.

But, across the board, companies can reinvest in business support, analytics, and forecasting when automation inevitably provides valuable cost savings. Modern accounting technology provides unification across your systems and data for a single source of truth, and standardizes processes for consistency, efficiency, and control. For strategic finance and business decisions to be made in a timely and effective manner, business owners need to be confident that they’re getting accurate information from the balance sheet. Balance sheet reconciliation verifies the accuracy of the balance sheet by comparing the numbers on the general ledger to other forms of documentation, to explain any discrepancies. Your success is our success.From onboarding to financial operations excellence, our customer success management team helps you unlock measurable value. Through workshops, webinars, digital success options, tips and tricks, and more, you will develop leading-practice processes and strategies to propel your organization forward.

Check Outgoing Funds

In a healthy accounting environment, regular reconciliations are used to verify accurate information is in the accounting system. Reconciliations are one of many controls that should be used to ensure accuracy and detect fraud. Reconciliations are used throughout the practice of accounting for various reasons. One such example is the balance sheet reconciliation and it is an important component to performing regular closings in the accounting cycle. Another possibility that may be causing problems is that the dates covered by the bank statement have changed, so that some items are included or excluded. This situation should only arise if someone at the company requested the bank to alter the closing date for the company’s bank account.

What Is a Balance Sheet Reconciliation?

That includes monitoring reconciling items to understand ageing and potential write-offs, as well as categorizing items to understand the root cause and fix upstream problems. The last few years has seen a growing focus on the ‘last mile’ of the close – the most externally visible management processes that finance executives perform after the monthly, quarterly or annual close to prepare for financial reporting and disclosure. In contrast, the early stages of the financial close – the ‘first mile’ – which includes the capture of financial data and production of the preliminary trial balance and consolidations, have largely been neglected. And this is the case even though many of the problems that occur in the last mile are due to first mile issues.