Balance Sheet Reconciliation Process: Expert Tips

Running a business comes along with the necessity of performing the balance sheet reconciliation process. Accountancy teams know the importance of crossing off their balance sheet reconciliation checklist, but they often can become bogged down by the complexity and time-consuming nature of having to complete the process.

With financial automation solutions, the balance sheet reconciliation process is streamlined and made easy. In this article, we will share all there is to know about balance sheet reconciliation best practices and how automation can aid in carrying out the various types of reconciliation required.

Coming Up

1. What is Balance Sheet Reconciliation?

2. Why is Balance Sheet Reconciliation Important?

3. What are the Steps for the Balance Sheet Reconciliation Process?

4. What are the Challenges of Financial Close?

5. What are Limitations of Manual Account Reconciliation?

6. Why Use Technology to Streamline the Balance Sheet Reconciliation Process?

7. How to Perform Balance Sheet Reconciliation Process Using Technology?

8. The Bottom Line

What is Balance Sheet Reconciliation?

A balance sheet displays the business’ current financial standing. It keeps track of assets (what you own), liabilities (what you owe), and equity (the remainder after expenses are paid). For a balance sheet to work as intended, the total assets should equal total liabilities and equity.

If this isn’t the case, reconciliation is needed to rectify the discrepancy. The balance sheet reconciliation process is performed for this reason– it’s where you crosscheck information, balances, and documents to make sure that all entries are recorded properly during the month end close process.

Why is Balance Sheet Reconciliation Important?

Balance sheet reconciliation is of great value to a business of any size. The process helps to ensure that there have been no accounting mistakes and that all information reflected in the balance sheet is accurate.

By performing the balance sheet reconciliation process on a consistent basis, business are able to:

• Detect fraud
• Prevent errors
• Understand their financial standing
• Pinpoint discrepancies

Since there is quite a bit of tedious work involved in performing balance sheet reconciliations (such as data collection), most businesses tend to do it on a monthly, quarterly, or even annual basis. While this routine works, it’s always advisable to perform reconciliations as often as possible.

Financial automation solutions can carry out the entire process in minutes rather than having to take days or weeks to do. This way, fraud can be detected sooner and business decisions can always be made based on up-to-date financial status.

Let’s check out the steps involved in a manual balance sheet reconciliation process and then see how technology can be used to boost efficiency.

What are the Steps for the Balance Sheet Reconciliation Process?

The balance sheet reconciliation process can be broken down into four main steps, namely:

1. Data Collection and Documentation

The balance sheet reconciliation process relies on having access to the data you’ll need. You’ll have to gather documentation from the current accounting period including items like:

• Bank statements
• Current account balances
• Financial records
• Receipts

Although this step doesn’t require any high-level thinking, it can become complex and time-consuming if your data is siloed or inaccessible. It’s often the step in which many bottlenecks occur because accountant teams are stuck pulling data from various sources and having to manually structure the data for comparison’s sake.

With the use of a financial automation solution, all relevant financial data can be pulled into a centralised repository and automatically formatted for the balance sheet reconciliation process.

Financial automation software solutions like SolveXia can connect to all your legacy and existing systems using APIs.

2. Cross-Check Data

Now comes the fun part. To ensure the balance sheet is accurate, you’ll need to compare the line items to the financial documents acquired in step one.

Make sure that all items are classified properly and all information is noted. At the same time, it’s important to make sure that the general ledger and balance sheet match.

3. Make Adjustments

If step two has uncovered any discrepancies, it’s time to make the relevant adjustments to correct it. This could include adding a new transaction, adjusting entry amounts, updating transaction classification, to name a few.

4. Check for Balance

At the end of the process of cross-checking and adjusting, it should be the case that your balance sheet is balanced. Again, this means that your Assets = Liability + Equity

What are the Challenges of Financial Close?

The financial close relies on the completion of the balance sheet reconciliation process. In order to move into the next accounting period and close the books on your current accounting period, you must make sure that all records are accurate.

More often than not, businesses face the common pitfalls and challenges of performing their reconciliation processes, whether it be a cash reconciliation, credit card reconciliation, or balance sheet reconciliation because it’s being done manually.

Disconnected systems are the first hardship to overcome. If you’re relying on spreadsheets to source data, there’s a high chance of manual error that can have a domino effect and will end up negatively impacting multiple documents and statements.

Manual and repetitive work can create dissatisfaction and burnout amongst employees and dilute their ability to focus on high-level tasks. At the same time, balance sheet reconciliation requires approval and transparency, and with disparate systems, bottlenecks are bound to occur.

You can overcome all of these challenges with a financial automation solution that streamlines your processes, ensures data accuracy, and connects all your systems to optimise workflows!

What are Limitations of Manual Account Reconciliation?

Manual account reconciliation can work for some time, but it’s not sustainable. This is especially true as a business grows and the amount of data and transactions scale.

The costs of manual account reconciliation undoubtedly outweigh the cost of using a financial automation solution instead. The costs you must consider when relying on a manual balance sheet reconciliation process include:

Time:

Manual processes are obviously more time-consuming than automated processes. For balance sheet reconciliations, you have to consider the time it takes to collect and source data, manipulate data, create a reconciliation report, forecasting, and analysis.

Cost:

Paying your accounting and finance department for their time spent is something worth factoring in. You must also consider the opportunity cost of having them focused on manual and repetitive tasks rather than strategic endeavors.

Risk:

Manual errors can increase various types of business risk. Manual work can also open the door to the potential of fraud.

Audit:

The balance sheet reconciliation process requires ultimate visibility and transparency to protect against audit risk and ensure accuracy of financial statements.

Talent:

Your top-tier talent may become demotivated and unengaged after countless hours performing repetitive tasks instead of using their skills for high-level work.

Why Use Technology to Streamline the Balance Sheet Reconciliation Process?

Reconciliation automation software streamlines the balance sheet reconciliation process in several ways.

Here’s how technology is transforming financial departments for the better, especially when it comes to reconciliation processes:

1. Automation

With the use of software like SolveXia, data collection, data transformation, and transaction matching is carried out without the need for human intervention. In turn, your account and financial department employees can focus on high-level tasks while the system carries out the reconciliation process with less errors and more quickly.

2. Internal Control

Management teams gain access to the process to check on its status at any given moment. They no longer have to rely on getting ahold of the key person responsible for reconciliation because the software can show what’s been done and what is up next.

3. Standardisation

With financial automation software like SolveXia, finance departments can standardise all of their processes across different offices and locations so that internal control can be maintained. This helps to reduce audit risks and other types of business risk.

4. Employee Satisfaction

You’ll be hard pressed to find any finance professional who is in love with the tedious nature of performing the balance sheet reconciliation process. By taking this time-consuming task off their plate, you will free them up to focus on more rewarding responsibilities that are likely to increase their satisfaction levels at work.

How to Perform Balance Sheet Reconciliation Process Using Technology?

Using technology to streamline your balance sheet reconciliation process is the easiest thing you can do!

For example, with SolveXia, you simply have to fire up the system. Then, you can connect and unify data from multiple systems with clicks of your mouse. There’s no code required.

To assemble any workflows, there’s a drag-and-drop functionality where you get to choose from a library of functions to build out your processes.

The cloud-based solution is designed to scale with your business and business processes as you grow. Want to see how SolveXia can streamline your business’ reconciliation processes? Want to see it in action, request a demo and see how it can help you.

The Bottom Line

The balance sheet reconciliation process is going to always be a main component of the financial close process. Rather than having to worry about manual errors and the time-consuming nature of the process, you can rely on financial automation solutions like SolveXia to streamline your various types of reconciliation needed.

This way, your business can benefit from efficiency, accuracy, and timeliness of financial reports and data all while reducing risk and remaining compliant.