Balance Sheet Reconciliation Example & Expert Tips

The financial close process isn’t complete without crossing off the items on your balance sheet reconciliation checklist. Looking at a balance sheet reconciliation example can help improve your own process, especially when we share how automation eases the steps.

In this article, we will review balance sheet reconciliation best practices and share more tips about automation software.

Coming Up

1. What is a Balance Sheet Reconciliation?

2. What are the Components of Balance Sheet Reconciliation?

3. What is the Importance of Balance Sheet Reconciliations?

4. What are the Challenges of Financial Close?

5. How to do Balance Sheet Reconciliation?

6. How to do Balance Sheet Reconciliation with Accounting Software?

7. How Automation Simplifies Balance Sheet Reconciliation?

8. What is the Cost of Manual Balance Sheet Reconciliation?

9. Closing Thoughts

What is a Balance Sheet Reconciliation?

Balance sheet reconciliation is the process of checking that closing balances on external statements match that of the general ledger entries and accounts. It’s more commonly referred to as “closing the books.”

Balance sheet reconciliation is of utmost importance because it ensures the accuracy of financial statements. And, as you know, most major business decisions are made based on these statements, so it’s necessary for them to be up-to-date and correct.

Any balance sheet reconciliation example will include reconciling multiple accounts, including:

• Cash
• Accounts receivable
• Credit cards
• Accounts payable
• Prepaid expenses
• Fixed assets
• Deferred revenue
• Debt
• Equity

What are the Components of Balance Sheet Reconciliation?

The balance sheet is made up of assets, liabilities, and equity.

When it comes to the types of reconciliation, two components prevail. These include the T-format and the vertical format. The vertical format tends to be more widely used, but both can fulfill the job!

The T-format shows the assets on the right side and the components of the liabilities on the left side.

The vertical balance sheet format is one in which all components are shown stacked above one another, hence it being called the vertical format (see an example here).

What is the Importance of Balance Sheet Reconciliations?

Balance sheet reconciliation is a foundational process during the financial close period. Without performing this task, business owners would lack confidence and trust in their financial statements.

Additionally, balance sheet reconciliations can help to:

• Spot errors
• Detect fraud
• Manage cash flow
• Identify any weaknesses within internal controls

Since balance sheets entail many moving parts like various accounts and transactions, it can easily become chaotic to keep track of without mistakes. Manual accounting processes tend to take more time than they should and can result in human errors.

Instead of expecting your team of professionals to be bogged down collecting data and documentation or going line-by-line through statements to perform transaction matching, you can utilise a financial automation software like SolveXia which can automate the balance sheet reconciliation process.

A tool like SolveXia connects to any of your existing data sources, executes transaction matching quickly, and can alert you if there are any discrepancies that require reconciliation.

What are the Challenges of Financial Close?

Many companies make use of a bank reconciliation template or follow the standard steps of performing the critical task of reconciliation. However, challenges can still arise, especially when performed manually.

For starters, there’s a lot of data needed and time required to collect all the documentation before even beginning the process. If your company is stuck with outdated technology or multiple and separate systems, this becomes even harder to do. Let’s not forget that if many different hands are storing data on spreadsheets, then there could be missing transactions or information within the process.

The financial close process can end up taking too much time, cause missed deadlines, and get stuck if you rely on key people to carry out specific steps of the process. Instead, with an automation tool, you can reduce your compliance risk, expedite the reconciliation process, and reduce any reliance on key personnel as the software will do the heavy lifting.

How to do Balance Sheet Reconciliation?

We mentioned the direct steps of balance sheet reconciliation, but we would be remiss if we didn’t spell them out. Here’s a look at what you should expect to be your process, if you’re moving forward by hand:

1. Collect Documents

Pull all required documents from external parties for the current financial period (i.e. the past month). This will include items like: receipts, bank statements, financial records, current account balances, credit card statements, and more.

2. Compare Transactions

Cross-check your statements with your balance sheet to spot any discrepancies or mismatching information. This could be misclassified line items, wrong amounts, or missing information, for example. Make a note of any problems with your balance sheet.

Also, be sure to double check that the ending balances on your general ledger and balance sheet line up with documentation.

3. Make Adjustments

You may need to adjust entries, add transactions, or change classifications to correct any errors that you found in step 2.

4. Confirm Balance

After you have made any corrections, make sure that your Assets = Liabilities + Equity

How to do Balance Sheet Reconciliation with Accounting Software?

As you can tell from the above steps, a manual balance sheet reconciliation example can take an enormous amount of time. From data collection to transaction matching, the process will rely on intense attention to detail.

When your accounting team has a lot on their plate, their time is generally better spent on high-level and value-added tasks such as informing decisions, forecasting, or advising on business strategy. To allow them to focus on such responsibilities, you can perform balance sheet reconciliation using automation software.

All you need to do is deploy the system! With an automation tool like SolveXia, you can streamline and standardise reconciliations to avoid the otherwise time-consuming nature of the process.

Not only does the system end up saving your team lots of time, but it also will improve the accuracy of reconciliation so you’ll have 98% less errors. Check out this case study of a US fintech company that reaped the benefits of automation.

How Automation Simplifies Balance Sheet Reconciliation?

Automation saves time and reduces errors. There’s probably not much more you could want out of a solution, and still, there are even more benefits to reap.

With automation as part of your financial close processes, you will also gain:

• A centralised workspace
• Standardisation of processes
• Secure data storage
• Increased internal control
• Added process visibility
• The opportunity for process improvement
• Role-centric reporting
• Access control
• Rules-based transaction matching capabilities
• Reporting and dashboard access

For example, if you were to deploy a tool like SolveXia to execute your account reconciliation processes, you’d have a lower dependency on staff, a less stressed workforce, and reduced costs. Plus, your entire organisation would benefit from added transparency of processes and the ability to scale operations.

What is the Cost of Manual Balance Sheet Reconciliation?

By performing manual balance sheet reconciliation, you’re going to undoubtedly experience inefficiencies. There are several costs associated with doing so that an automation software would otherwise ensure you overcome, some of which include:

1. Time

You know how it goes: time is money. Your team will be spending too much time collecting, matching, and documenting transactions as opposed to focusing on high-level and strategic tasks.

2. Risk

Along with the time spent, you may be adding to compliance, reputational, and fraud risks (to name a few) as performing balance sheet reconciliation manually opens the door to manual errors. Data accuracy is critical for financial statements and reconciliation, so there’s no room for mistakes.

3. Talent

Employees may become disheartened, frustrated, and disengaged when they are expected to continuously perform repetitive and mundane tasks. The cost of employee disengagement, absenteeism and potential turnover can quickly add up financially and beyond by affecting morale and productivity.

Closing Thoughts

No matter what balance sheet reconciliation example you look at, automation software can streamline the process. Automation makes it easier to carry out financial close in a timely manner with less errors and greater efficiency.

With more accounting teams moving into the era of financial transformation, it’s becoming a necessity to streamline and automate such crucial processes in order to remain competitive.