What Is Balance Sheet Reconciliation?

Without accurate information, organizations risk making poor business decisions, paying too much, issuing inaccurate financial statements, and other errors. In this article, we will explore in detail what balance sheet reconciliation entails, the step-by-step process involved, the benefits it offers, and most importantly, five common mistakes to avoid. Additionally, we will discuss strategies to improve balance sheet account reconciliation using Nanonets. It’s no question that spreadsheets serve many essential functions for individuals. They can be used to organize a personal budget, accumulate important figures, and more.

The process of reconciling the balance sheet requires a great deal of information gathering. This is because at its core the process is largely cross-checking account balances and journal entries with supporting documentation. What about making sure your financial statements are accurate, or that you’ve complied with regulatory requirements? By focusing on internal controls over Financial Reporting (ICFR), small to medium-sized businesses can enhance the integrity of their financial records by regularly performing cost-effective internal controls that lessen risk. Balance sheet reconciliation is the process of closing balances of all individual company accounts that are a part of the company’s balance sheet. This is done by businesses to ensure that the company closing balances are classified and recorded properly in a balance sheet.

The CIO’s Guide To Finance Automation

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. Many finance leaders leverage dedicated cloud financial close experts to establish best practices. Learn how Redwood’s professional services help achieve your transformation goals. 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 understand what they are.

Simplify your close processes with financial close automation software that work to solve any problem, no matter how complex. While a useful tool, spreadsheets are notoriously known for being susceptible to errors. Not only do spreadsheet errors lead to significant consequences if not promptly corrected, but they also increase the risk for your organization. Spreadsheets should be a supplementary tool in the reconciliation process rather than the primary tool used.

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. Controllers implement account reconciliations to not only maintain accuracy but also to reduce risk of fraud. Despite progress in accelerating closing cycle times and submission dates, further opportunities for improving the end-to-end account-to-report process remain. 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.

Investigate Discrepancies

Some reconciliations are necessary to ensure that cash inflows and outflows concur between the income statement, balance sheet, and cash flow statement. GAAP requires that if the direct method of presenting the cash flow statement is used, the company must still reconcile cash flows to the income statement and balance sheet. Periodically, many individuals reconcile their checkbooks and credit card accounts by comparing their written checks, debit card receipts, and credit card receipts with their bank and credit card statements. This type of account reconciliation makes it possible to determine whether money is being fraudulently withdrawn. One account will receive a debit, and the other account will receive a credit.

Furthermore, they are accountable for providing this information in a timely manner at the request of Central Administration, Internal Audit or external auditors. Documentation that is not maintained centrally must be maintained by departments. This lack of transparency can raise concerns among stakeholders and erode trust in the organization’s financial reporting. It enables organizations to make data-driven decisions, identify trends, and forecast future performance more effectively. Join 500+ wine business owners in the know, getting the latest accounting news in the wine business. Join 500+ business owners in the know, getting the latest accounting news in the wine business.

AI-Based Deduction Management Software

Another important aspect of reconciliation is ensuring that all balances agree. This means comparing the balances on the accounting records to the balances on the bank statements or other supporting documentation. This puts the account balances on is accounting a good major in 2023 the company’s balance sheet out by thousands, but it’s only noticed at the end of the financial year. Had the start-up committed to monthly reconciliation, it would have noticed the significant debt much earlier in the year to rectify the issue.

• Create, review, and approve journals, then electronically certify, post them to and store them with all supporting documentation.
• Reconciliations are one of many controls that should be used to ensure accuracy and detect fraud.
• Not only do spreadsheet errors lead to significant consequences if not promptly corrected, but they also increase the risk for your organization.
• Nanonets utilizes optical character recognition (OCR) technology to extract relevant data from bank statements and other supporting documents.

A low-risk account may only need to be reconciled on an annual basis, whereas a high risk balance sheet account may be prioritized each month. The risk rating could also determine the level of approval that is required in the workflow. If you have a small business with simple financials, reconciliation may only take a few minutes each month. But suppose you have a large business with multiple bank accounts, credit cards, and loans. Reconcile a business credit card account with transaction receipts, and create an expense report for documentation. This template can be used for travel, entertaining clients, or other authorized business expenses.

Resolve current and prior period reconciling items. Correct Balance Sheet account activity errors

Check out the advantages that you stand to gain and how automation software can be complementary. Modern applications are working to streamline these schedules and make it easier to reference and roll them during month-end closing. A new Portal account can be requested by a colleague with access to the Support Portal.

During the year-end financial close, the books may be left open for a brief period of time so that account reconciliations for major accounts can be performed and adjustments are included in the final balances before closing. 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. Accurate financial reporting relies on an accounting process with solid internal controls.

Mistakes: Human errors, such as transposing digits, data entry errors or incorrect calculations.

Automated solutions also free up valuable resources, allowing accountants to focus on value-added activities like financial analysis, strategic planning, and decision-making. This enhances the credibility of the organization’s financial reports and helps stakeholders make informed decisions based on reliable information. Here are some of the benefits that organizations can derive from this essential process. Protea provides services to take over the burdens and responsibilities of finding, managing, and training an accountant or bookkeeper for businesses and free up proprietors’ time, so they can focus on building their businesses. When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.

For instance, if a business has outstanding credit card debt that it didn’t know about, this can affect the spending budget for the next financial year. The company can mitigate the risk by cutting budgets to pay for the surprise debt. Using a schedule of general ledger accounts, analyze capital accounts by transaction for any additions or subtractions. The spreadsheet should include beginning balance, additions, subtractions, and any adjustments required for recording to agree with the general ledger ending balances for capital accounts. Reconcile beginning balance, list and add new transactions, list and subtract payments or other reductions, and compute the ending balance for the period. This schedule of activity should support the general ledger ending balance for each account.

Transaction Matching

An employee makes an error in how many laptops were purchased for new employees on the company credit card, adding an extra zero by mistake. Transaction errors include duplicate recording of transactions in the detailed subsidiary journal that’s a sub-ledger or recording an asset as an expense. Capital accounts activity includes par value of the common stock, paid-in capital, and treasury share transactions. Compare income tax liabilities to the general ledger account and adjust for any identifiable differences that need recording via journal entry. NetSuite has packaged the experience gained from tens of thousands of worldwide deployments over two decades into a set of leading practices that pave a clear path to success and are proven to deliver rapid business value. With NetSuite, you go live in a predictable timeframe — smart, stepped implementations begin with sales and span the entire customer lifecycle, so there’s continuity from sales to services to support.

• Every finance department knows how challenging it can be to perform a balance sheet reconciliation.
• The ending balance in the schedule should agree with the general ledger balance.
• Increase accuracy and efficiency across your account reconciliation process and produce timely and accurate financial statements.
• With NetSuite, you go live in a predictable timeframe — smart, stepped implementations begin with sales and span the entire customer lifecycle, so there’s continuity from sales to services to support.
• While it may seem like a straightforward process, there are common mistakes that can hinder the effectiveness of balance sheet reconciliation.
• Because the benefit has been received, an expense is necessary and a credit to accrued liabilities offsets that expense.

Even the most diligent accountants can make mistakes, especially when dealing with large volumes of data. Merely identifying discrepancies without investigating their causes is a significant oversight. It is crucial to delve into the root causes of discrepancies to prevent them from recurring in the future. Empower your people to go above and beyond with a flexible platform designed to match the needs of your team — and adapt as those needs change. We came over from a rather elderly version of SAP B1 which had this functionality built in, so it was quite a surprise to find this part of the system is so limited, given how essential it is for accounting & audit. Despite our best efforts, we can’t keep an eye on what all employees are up to.