A Complete Guide to the Balance Sheet Reconciliation Process

Deposits in transit record entries that have been marked as received by the company but haven’t been recorded in beginning balances and closing entries on an income summary the bank yet. Since these deposits are typically made near the end of the period, they are typically reflected in the next period. Yet, the financial close has long been a source of frustration and pain for finance departments, with potentially significant ramifications for the organization as a whole. Download our data sheet to learn how to automate your reconciliations for increased accuracy, speed and control.

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. Although traditionally labor-intensive and prone to errors due to lack of oversight, advancements in data automation have transformed balance sheet reconciliations.

1. Balance sheet reconciliation is a fundamental part of the record-to-report process, serving as a business’s certification that all accounts are precise and accurately reflect the company’s financial status.
2. Accurate financial information is the backbone of good business decision-making, never more so given the high levels of economic volatility and shifting strategic priorities.
3. In the example given above, we see a discrepancy of $45,000 between the subledger balance and the GL balance.

Financial Automation Data Sheet

Balance sheet reconciliation, a fundamental yet often intricate task, plays a vital role in this process. It helps verify that a company’s financial records are precise, uncover discrepancies, and maintain overall financial health. Whether you’re a seasoned accountant or new to the field, understanding the balance sheet reconciliation process is essential. In this blog, we’ll explore the step-by-step procedure, provide a practical example, and share best practices to streamline your efforts, ensuring your financial statements are always accurate and reliable. Balance sheet reconciliation is a crucial process for ensuring the accuracy and integrity of a company’s financial statements. By comparing the balances in your financial records to external sources, you can identify and resolve discrepancies, ensuring your balance sheet accurately reflects your financial position.

Best DocuClipper Alternatives for Document Processing

This is a great way to be able to protect information, improve processes, improve compliance, and prevent fraud. Given the critical nature of balance sheet reconciliation, it’s paramount for it to be accurate, completed in a timely manner, and streamlined. By using account reconciliation software, you can remove the literal paper trail, and your team can be freed from tedious tasks.

Free Up Time and Reduce Errors

However, the lack of bandwidth and time pressure means many organizations and their finance teams are forced into doing most reconciliations, not just the high-risk accounts, outside of the financial close. Balance sheet reconciliations play a pivotal role in ensuring accurate financial reporting and enhancing operational efficiency through streamlined and automated processes. This process also supports compliance with financial regulations like GAAP or IFRS, preventing fines, sanctions, and legal actions. Accurate financial statements build confidence among investors, creditors, and other stakeholders, attracting investment and encouraging lenders to offer favorable terms. Internally, strong financial statements enable informed decision-making and simplify auditing processes, reinforcing that balance sheet reconciliation is vital for the overall health and success of a business.

The Importance of Balance Sheet Reconciliations

With more teams working remotely than ever before, siloed data causes even greater risks. If data is stored across desktops on spreadsheets, it’s not connected, which means it may be outdated or duplicated. A lack of proper oversight and robust internal controls can lead to significant issues within an organization. Without clear policies, team members may not conduct operating procedures in the same way; without strong controls, like having separate preparers & reviewers, it’s easier for fraudulent activities to go unnoticed. Without centralized data storage, there’s a higher chance for errors due to miscommunication, data transfer issues, or general file mismanagement.

During reconciliation or the closing of accounts, a business has the chance to ensure that everything has been documented accurately. These adjustments correct the discrepancies, ensuring that your financial statements are accurate. Proper journal entries are essential for maintaining the integrity of your financial records.

Understanding the root cause of discrepancies helps in correcting them accurately and preventing future occurrences. 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. Download our data sheet to learn how you can prepare, validate and submit regulatory returns 10x faster with automation. Balance sheet reconciliations should provide more benefits than harm to your business. For example, if you choose to deploy a reconciliation tool like SolveXia, you can take advantage of its library of functions and develop your own processes using drag-and-drop functionality. With automation solutions, you also have the opportunity to make use of pre-designed workflows across the board.

Combining these approaches can help the finance team focus on value-adding analysis and investigation. While spreadsheets are versatile and commonly used in finance, they are prone to errors and can lead to incorrect assumptions about the accuracy of financial data. Companies that rely heavily on spreadsheets for balance sheet reconciliation may find it challenging to keep up with the pace of business and ensure the accuracy of financial statements. Without adequate oversight and control, it’s challenging to track the status of the reconciliation process, identify issues, and ensure that corrections are made promptly. Companies must establish clear policies and procedures for balance sheet reconciliation and implement robust internal controls to ensure the accuracy of financial statements.