How to Reconcile General Ledger Accounts?

What is Reconciliation in Accounting? How to Reconcile an Account?

What is reconciliation in accounting? How to reconcile an account? Reconciliation in accounting stands for the comparison between two different financial accounts in order to see if they have the correct account balances between them for the end of an accounting period. The accountants responsible for the reconciliation process must compare the balance amount of the general ledger accounts with various other independent systems in order to verify the accuracy of the reports. In case of discrepancies, the accountants must identify these errors and bring the balances of the two identified records into agreement. Under Section 404 of the Sarbanes-Oxley Act of 2002, it is compulsory for all publicly-traded institutions to have internal controls for financial reporting as part of the annual report. Further, they must maintain these controls for total effectiveness.

The financial institutions are therefore supposed to follow the process of reconciliation in accounting, where all the balance sheets that contain any errors for rework can be adjusted prior to the end of the accounting period. In order to ensure complete accuracy in their financial reports, most institutes are often unable to produce the general ledger in time. This, in turn, brings the possibility of risk to the organization for non-compliance. The process of reconciliation in accounting should ideally be accomplished before any requirement of verification by the Financial Institution (FI) on the integrity of their financial reports.

To summarize, the process of reconciliation in accounting is a method to identify, adjust, and balance out the remaining amounts of two different financial accounts in case there are any discrepancies. The above procedure will help to correct the balance in the account and validate the institution’s financial accounts and financial information. The account reconciliation will typically be processed or carried out after the close of a financial period. So, during this time, the accountant will manually go through each general ledger, comparing the balance amount with other sources and using their financial data. This will help the accountants to verify whether the balance amount on all the general ledger accounts is correct. In case the balance amounts are inaccurate, the accountants will investigate them further and correct the remaining errors. Finally, once all the general ledger accounts are verified, the financial information will be stored for audit use and sent for the audit report.

Meaning of Reconciling General Ledger Accounts

Meaning of reconciling general ledger accounts: A general ledger is the financial recordings of every transaction made by numerous bank accounts in a financial institution. The general ledger balance sheet reconciliation requires deducting the total number of debits from the total number of credits, to ensure that the balance amount in all of the accounts is accurate. For a financial institution, the quality of their financial data is recorded at the general ledger level, which is why it should be reconciled at regular intervals, such as monthly or quarterly. Reconciling of the general ledger accounts is essential for reporting and maintaining internal controls – without which the institute could face systematic issues. Thus, reconciling general ledger accounts is at the centre of all functions held by accountants, and the absence of it can result in incorrect records or inaccurate financial data, which in turn will impact the audit reports and the financial resources of the financial institution.

How to Reconcile General Ledger Accounts?

How to reconcile general ledger accounts? The process of reconciliation aims to correlate between two sets of records and maintain an inventory that can help to identify the account’s transactions, detect any errors in their balance amounts, and correct the amounts in case of any discrepancies. The general ledger account is a summation of all transactions in subsidiary ledger accounts, which includes the accounts payable and receivable, inventory, and cash amounts.

How to reconcile general ledger accounts? The method used for general ledgers is a double-entry accounting method, where the income is categorized under debit, credit, and the cash amount. The items that enter the general ledger can be divided into different categories: first, the journal entry that reflects the item number for all account transactions; second, the description of the transaction; third, the value of the account’s net balance as credit or debit, and, lastly, the remaining balance in the general ledger.

The daily journals – which are records, apart from the general ledger – are used to keep track of all transactions taking place on a daily basis, such as any cash amounts for an invoice. These transactions are then posted in the general ledger, where the totals of their invoice amount are calculated and added to the financial reports/balance sheet. The balance sheet is important because it shows the financial institution’s total revenue and expenses, along with the income statement, which is closed at the end of the accounting year. The balance sheet also helps to keep a record of the institution’s financial health.

How to reconcile general ledger accounts? The procedure for general ledger begins by logging in or keeping a journal of every business transaction with the transaction details. These transactions are then categorized into different accounts: cash, accounts payable, or sales. Then, these daily journals are reconciled regularly (at the end of every month or quarterly) and transferred into the general ledger once they are complete. There are different ways to investigate and review the reconciliation process when they are categorized in different accounts: investigating the beginning balance to the ending reconciliation; investigating accounts in the current period; reviewing the adjusting journal entries; reviewing when journal entries are reversed; and reviewing ending details with the ending balance.

Importance of GL Accounts Reconciliation

The process of GL accounts reconciliation is followed by financial institutions before the annual audit, to ensure that the accounts are accurately recorded. The GL accounts reconciliation makes sure that those financial accounts are correct and efficient, making the closing processes easier and financial regulations simpler to comply with. There are added benefits of GL accounts reconciliation, including precision, accuracy, and consistency in the institution’s financial data/statements, all of which better aid business-related decisions. The accountant team’s work is to use reconciliation to prevent any errors in the balance sheets or various accounts in the ledger within the timeline. The financial institution receives a blueprint of their financial spending, which allows better clarity on the allocation of finances and overall improved financial health. The general ledgers should be reconciled regularly every month, which will help to review and maintain the institution’s internal controls as per the Sarbanes-Oxley Act, and further prevent any fraudulent activities from taking place in the financial institution.

The possibilities of tech are effectively made use in the reconciliation process today. By using different software solutions, organisations can largely automate their reconciliation, helping them save on time and cost. There are dedicated reconciliation software available in the market today and they can significantly reduce human errors while automating many repetitive processes. By and large, they provide centralised control, better monitoring, operational cost savings, increased effectiveness and efficiency, better accessibility, improved data security and reduced audit risks.

There are also reconciliation software solutions powered by modern technologies such as artificial intelligence and machine learning. In comparison to rules-based solutions, they go a step ahead and enable completely automated reconciliation, while providing superior accuracy in matching and effective exceptions management.

Speak to a member of our team today to learn more about our market leading reconciliation solution.