Balance Sheet Reconciliation: Process, Example and Checklist

Welcome to a new frontier where software systems and data work together to help your business function better, faster and stronger. In every business, balance sheet reconciliation takes place in defined intervals, be it monthly, quarterly, yearly, etc. Balance sheets list assets and liabilities, and every transaction must be categorised as one or the other.

Record to Report

Point solutions prescribe certain ways of addressing processes that may not fit with your business, which can require further manual processes and workarounds to compensate. Evidence shows that either of these approaches still requires a substantial amount of work that must be performed manually. Properly reconciling a balance sheet account involves making sure you have recorded and accounted for every transaction in your business and applied the proper classification in the process. Liabilities include amounts owed to vendors, customers, employees, debtors and others. Accounts that include liabilities are typically actuarial gain or loss definition accounts payable, payroll and taxes payable, notes payable, deferred revenue and customer deposits. Opportunity costs aside, a slow financial close is more than likely an indicator that your processes are cumbersome.

Step 5: Make adjustments to the general ledger

Automation introduces precision, reduces dependency on key personnel, provides real-time updates, and supports comprehensive audit trails, thus improving overall compliance. Balance sheet reconciliation differs from account reconciliation in scope, but are often used interchangeably. Account reconciliation focuses on comparing a specific general ledger account balance, such as a cash account, to its respective documents. Balance sheet reconciliation, however, looks at the overall financial position by considering all accounts listed on the balance sheet. Both processes are necessary, but balance sheet reconciliation provides a broader view of financial health.

1. Companies that close within a short window often rely more heavily on estimates and accruals, which may not be exact.
2. This process helps identify any omissions, errors, or misclassifications, which could otherwise adversely affect the financial statements.
3. When working on balance sheet reconciliation within an organisation, more than one person likely has access to the spreadsheets and account information.
4. Visibility in the reconciliation process is vital to tracking progress and minimizing risk.
5. Additionally, the manual nature of extracting, reconciling and approving data creates opportunities for errors.

Spreadsheets Increase Error Risk

Although balance sheet reconciliation can be challenging, automation with tools like Numeric and structured processes make it manageable and efficient. Sarah works as a senior accountant for GreenLeaf Enterprises, a sustainable energy company. One of her monthly tasks is to reconcile the company’s balance sheet accounts to ensure accuracy in the financial statements.

Individuals should reconcile bank and credit card statements frequently to check for erroneous or fraudulent transactions. If a personal ATM or debit card was involved in a fraudulent transaction, an individual’s liability is limited to $50 if they notify the bank within two business days, but rises to $500 after two days and up to 60 calendar days. After 60 days, the Federal Trade Commission (FTC) notes, they will be liable for “All the money taken from your ATM/debit card account, and possibly more—for example, money in accounts linked to your debit account.” If the indirect method is used, the cash flow from the operations section is already presented as a reconciliation of the three financial statements. Other reconciliations turn non-GAAP measures, such as earnings before interest, taxes, depreciation, and amortization (EBITDA), into their GAAP-approved counterparts.

With SolveXia, finance teams can streamline every type of account reconciliation across systems. Its intelligent, process-centric application brings together data processing and matching so teams can complete account reconciliation 100x faster with 90% fewer errors. Overall, a thorough balance sheet reconciliation process does more than just keep the numbers accurate – it’s the bedrock of solid financial reporting. The difficulty of balance sheet reconciliation can vary based on several factors. Complex transactions require detailed analysis and can be harder to reconcile, while high volumes of transactions increase workload and the risk of errors. Manual reconciliation is more challenging and error-prone compared to automated processes, which simplify the task.

For teams on Numeric, the trial balance and supporting document total will auto-populate each month, no need to download. But, across the board, companies can reinvest in business support, analytics, and forecasting when automation inevitably provides valuable cost savings. Reconciling your organization’s balance sheet is a critical component of the financial close. Compare this with the loan statement from the bank to identify any discrepancies.

It sets the stage for trustworthy finances, builds confidence with stakeholders, and paves the way for steady business growth down the line. While Excel spreadsheets are commonly seen as fundamental to conducting accounting tasks, they are definitely not without their limitations. With their manual nature, they are highly susceptible to errors – a single mistype or incorrect formula can throw off your entire reconciliation. It’s nigh impossible to track changes over time, and spreadsheets don’t really provide a clear audit trail, making it harder to ensure accuracy and compliance. Regularly scheduling balance sheet reconciliations is crucial for keeping financial records accurate. To make sure your balance sheet is free of any discrepancies, do a final check to verify that your total liabilities and equity equal your total assets.

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. Similarly, automated routines speed up reconciliation by taking repetitive tasks off your plate, freeing up time for more critical analysis.