Prepare Balance Sheet Account Balance Reconciliations

Modern accounting technology has made the virtual close process—and specifically the balance sheet reconciliation process—unified, automated, and continuous. In addition, having accurate and timely disclosures is crucial when seeking investors. Regular balance sheet reconciliations help finance professionals and CFOs identify errors, discrepancies, and fraudulent activity. This enables them to take corrective action promptly and prevent financial loss.

Thoroughly organizing and documenting financial records is essential for smooth and accurate audits, placing stress on finance teams. In the case of larger organizations, managing the substantial volume and complexity of financial data from diverse sources can be arduous. Consolidating, reconciling, and validating this data consumes significant time, potentially causing delays and errors. A common «quick win» improvement is to set tolerances and materiality thresholds across the organization.

1. It involves comparing the balances in the balance sheet with the general ledger and supporting documents such as bank statements, credit card statements, and invoices.
2. Accurate financial reporting relies on an accounting process with solid internal controls.
3. Therefore, it’s important to take a closer look at internal controls over financial reporting (ICFR), which relates to the preparation of reliable financial statements.

This is especially true as businesses grow, and accounting teams struggle to keep up with the pace of business. For instance, BlackLine — a financial close software solution — can be customized to align with your account reconciliation policy to measure your own specific goals. The administrator can put your policy requirements in the tool and tag points, then see it all together.

Balance Sheet Template

Essentially, balance sheet reconciliations are essential during the financial close as they ensure the accuracy and integrity of an organization’s financial statements. The number of different balance sheet accounts to be reconciled can vary from few hundred to thousands, with some accounts containing thousands of transactions – all of which require certification. Extracting, reconciling and approval processes are often manual, and creating room for errors which, in turn, require more reviews and approvals to ensure accuracy. Balance sheet reconciliation is the process of ensuring your balance sheet information is accurate.

And this is the case even though many of the problems that occur in the last mile are due to first mile issues. HighRadius Autonomous Accounting Application consists of End-to-end Financial Close Automation, AI-powered Anomaly Detection and Account Reconciliation, and Connected Workspaces. Delivered as SaaS, our solutions seamlessly integrate bi-directionally with multiple systems including ERPs, HR, CRM, Payroll, and banks. However, in reality, there may be discrepancies between the sub-ledger and general ledger balances due to various reasons such as errors in data entry, timing differences, or system glitches. Therefore, it is essential to perform regular balance sheet reconciliation to identify and correct any discrepancies. Reconciliation of balance sheet helps identify any discrepancies or errors in the financial statements, providing the necessary support and evidence to ensure that the numbers are accurate.

Reconciling other balance sheet accounts

This may involve adjusting journal entries, contacting relevant parties for clarification, or updating records to reflect accurate balances. And the bottom half of the reconciliation starts with the balance of the general ledger and then adds and subtracts entries that appear on the bank statement that you haven’t seen. You’ll notice the top of this reconciliation starts with the bank statement’s ending balance and then adds and subtracts entries you have on your general ledger that the bank hasn’t seen. Armed with a reconciled balance sheet, you’ll be more confident in making business decisions. Reconciliation serves an important purpose for businesses and individuals in preventing accounting errors and reducing the possibility of fraud.

Document the Reconciliation

If the reconciliation process lacks comprehensive and well-documented explanations, auditors may struggle to grasp the intricacies of the process, potentially raising doubts about the accuracy of reported figures. This documentation should include the steps taken, findings, and any adjustments made. Once you have identified the root cause of a discrepancy, take the necessary steps to resolve it.

Reconciliation for businesses

Reconciliations can be completed manually using Excel spreadsheets or by using BlackLine accounting software. Financial Management Services (FMS) provides guidance as to which reconciliation method (manual or BlackLine) should be used. The future of balance sheet automation lies in automation, enabling organizations to navigate the financial close process with the highest standards of financial integrity. As organizations grow, manual reconciliation’s scalability becomes a challenge. The increasing volume and complexity of transactions can overwhelm manual processes, resulting in inefficiencies and an elevated risk of errors.

When paired with QA reviews, these solutions can be used to eliminate manual controls, some of the SOC testing and more. When you take a deep look at the actual reconciliations themselves, and the support of them, you may find more gaps than you expected. Balance sheet reconciliations are a fundamental control point for accounting. In a QA review, a sample of reconciliations are reviewed to gauge their quality against customizable goals — for example, policy compliance, proper utilization of technology and timely certification.

The same can be said about a reconciliation process without a monitoring lead. Contrary to popular belief, this person does not have to be management, and the role is often a good way to develop up-and-comers in the organization. The main duties of the monitoring lead include tracking the completion status of all reconciliations, making sure the reconciliations are finished on time, and following up on incomplete or late reconciliations. You can use this template for reconciling petty cash accounts to help ensure that you’ve accounted for current receipts and that cash amounts are accurate. How often you need to reconcile the account may depend on how frequently it is used. Use this template to track accounts payable transactions, including supplier names, invoice numbers, amounts due, and completed payments.

Therefore, accurate financial reporting relies on an accounting process that includes solid internal controls, with balance sheet reconciliation being one of the most critical controls. 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. 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.

tax software survey

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. Here’s how to make such evaluations work to your organization’s advantage. Finally, automation can increase visibility into financial data by giving businesses greater insights into their financial performance. One of the significant drawbacks of traditional methods is the need for real-time visibility into data. This deficiency delays the identification of discrepancies, making it challenging to address them promptly and make informed decisions based on accurate financial insights. For a deeper dive into the intricacies of reconciling your general ledger, explore our guide on General Ledger Reconciliation, complementing your balance sheet reconciliation knowledge.

But how do you check that your assets, liabilities, and equity are correct? In single-entry bookkeeping, every transaction is recorded just once (rather than twice, as in double-entry bookkeeping), as either income or an expense. Single-entry bookkeeping is less complicated than double-entry and may be adequate for smaller businesses. Companies with single-entry https://intuit-payroll.org/ bookkeeping systems can perform a form of reconciliation by comparing invoices, receipts, and other documentation against the entries in their books. Many people reconcile their checkbooks and credit card accounts periodically by comparing their written checks, debit card receipts, and credit card receipts with their bank and credit card statements.

It also provides a full audit trail that captures every decision, whether robotic or manual, and piece of evidence used for decision-making throughout the entire process. 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 require a substantial amount of work that must be performed manually. While the definition of balance sheet reconciliation may be straightforward, the logistics can be a nightmare when all the tasks are being done manually.

Emma’s 70-person geographically distributed accounting team improved internal controls and streamlined the audit thanks to FloQast. 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 12 branches of accounting a transaction is entered into the general ledger in two places—making it the most prevalent tool for reconciliation among businesses. Low risk accounts are then typically reconciled outside of the financial close because they would not substantially impact the accuracy of the financial numbers. 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.

Handled properly, quality assurance serves as a crucial mechanism for more reliable data, greater efficiencies and better reconciliations, and you may have an evaluation tool already installed that can help guide you. Balance sheet reconciliation can be defined as a process of verifying the accuracy of information presented in the balance sheet. It includes cross-checking the closing balance of all the components of the balance sheet.