Balance Sheet Reconciliation Steps, Checklist & More

Other reconciliations turn non-GAAP measures, such as earnings before interest, taxes, depreciation, and amortization (EBITDA), into their GAAP-approved counterparts. Cash flow can be calculated through either a direct method or indirect method. GAAP requires that if the direct method is used, the company must still reconcile cash flows to the income statement and balance sheet. It’s also possible to make a double-entry journal entry that affects the balance sheet only. For example, if a business takes out a long-term loan for $10,000, its accountant would debit the cash account (an asset on the balance sheet) and credit the long-term debt account (a liability on the balance sheet).

• Ensure the ending balance on the general ledger matches the supporting documents.
• Automatically process and analyze critical information such as sales and payment performance data, customer payment trends, and DSO to better manage risk and develop strategies to improve operational performance.
• Next, compare the information from the general ledger to the supporting documents.
• Accelerate adoption and drive productivity and performance.One of the critical success drivers for any software technology is effective user training and adoption.
• Along with the data existing across computers, it means that your team needs to work to manually collect data from different sources, which is a huge time suck.
• The financial close is typically conducted at the end of each accounting period, which may be a month, quarter, or year depending on requirements and regulatory guidelines.

But why wait to get hit with these moments (or worse, find out after the fact that a lack of control has cost you stolen property or questionable business decisions since they rely on incorrect financial statements)? Business owners can implement, or evaluate existing, value-added procedures now that both are easy to understand and inexpensive to implement. As you’re familiar with, balance sheet reconciliation is the process of making sure that your balance sheet data is accurate and up-to-date. Since a balance sheet tracks your company’s assets, liabilities, and equity, it’s of utmost important to have these figures right at any given time because it’s often used for important decision-making.

Business Process Automation in 5 Easy Steps

Using a double-entry accounting system, as shown below, she credits cash for $2,000 and debits her assets, which is the equipment, by the same amount. For her first job, she credits $500 in revenue and debits the same amount for accounts receivable. However, generally accepted accounting principles (GAAP) require double-entry bookkeeping—where a transaction is entered into the general ledger in two places—making it the most prevalent tool for reconciliation among businesses. A common “quick win” improvement is to set tolerances and materiality thresholds across the organization. Rather than wasting time attempting to reconcile low dollar values, team members should work on other accounts or activities.

Hackett Group warns that the financial close marks the end of a process that goes on throughout the year and meaningful improvements require it to be addressed in a holistic way. The analyst highlights reconciliations and manual tasks as offering ample room for improvement. Visibility into the reconciliation process is vital to track progress and minimize risk. A dashboard enables finance professionals to easily see the status and current risk of their balance sheet integrity. 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.

Intangible assets and amortization

Based on knowledge gained from implementing over 4,000 customers, we have developed a proven approach designed to help your organization progress from planning to optimal efficiency and cost effectiveness. While the process typically takes two to four months, each customer journey is unique, and therefore, each onboarding experience is tailored to your organizational quiz and worksheet accounts receivable process needs. Improve data quality and accuracy with configurable, rule-based workflows that allow users to quickly identify discrepancies and inconsistencies. BlackLine Account Reconciliations is a comprehensive solution that transforms the substantiation process with out-of-the-box capabilities that ensure accuracy, enhance control, and maximize efficiency.

Amount paid by the customer is not completely reflecting in the bank

Ultimately, the risk ranking of the account determines how often the account is reconciled (e.g., monthly, quarterly) as well as the due date of the reconciliation (e.g., business day 6). Manual processes and outdated technology can lead to errors and delays in financial reporting, making it unsustainable for growing businesses. Legacy technology and disconnected data from multiple sources can also make it difficult to reconcile financial statements accurately. This can result in delays in the financial close process and errors in the financial statements. To ensure accuracy and balance, the process of account reconciliation involves comparing the balances of general ledger accounts for balance sheet accounts to supporting sets of records and bank statements. Additionally, rolling schedules are maintained with beginning balance, additions, reductions, and ending balance for specific accounts.

It offers a means for measuring quality, and the function gets an early glimpse into how auditors would find/rate a reconciliation — like getting to take a really hard test with an open book. Also, be sure to double check that the ending balances on your general ledger and balance sheet line up with documentation. A tool like SolveXia connects to any of your existing data sources, executes transaction matching quickly, and can alert you if there are any discrepancies that require reconciliation. Capital accounts activity includes par value of the common stock, paid-in capital, and treasury share transactions. Make any required adjusting journal entries for general ledger balances to correctly reflect short-term and long-term notes payable components.

Lost Time

Essentially, reconciliation is done to verify that accounting for a certain period has been accurately portrayed on a company’s books. Accelerate dispute resolution with automated workflows and maintain customer relationships with operational reporting. Unlock full control and visibility of disputes and provide better insight into how they impact KPIs, such as DSO and aged debt provisions. Understand customer data and performance behaviors to minimize the risk of bad debt and the impact of late payments.

When services or products are provided, the deferred revenue should be reclassified to revenue on the income statement (debit deferred revenue, credit revenue). Automation can help to improve the balance sheet reconciliation process in several ways. It can help to reduce the risk of errors by automating the data entry and comparison process. When your accounting team has a lot on their plate, their time is generally better spent on high-level and value-added tasks such as informing decisions, forecasting, or advising on business strategy. To allow them to focus on such responsibilities, you can perform balance sheet reconciliation using automation software. The financial close process can end up taking too much time, cause missed deadlines, and get stuck if you rely on key people to carry out specific steps of the process.

Credit Card Reconciliation Template

Start with your trial balance as the launch point for your balance sheet reconciliation process. With all your accounts summarized into a column layout, you can go down the list, ensuring you have a reconciliation for each balance sheet account. Maybe you forgot to record a few journal entries or mistyped a number, just like I have in the past. Automation of the reconciliation process with FloQast can reduce errors and improve workflow.