Complete Guide to Balance Sheet Reconciliations

No matter what role you play in your accounting team, you know that there are no way around account reconciliations and balance sheet reconciliations. The days of storing information across spreadsheets and manually recording transactions should be a thing of the past, yet many organisations still operate under these conditions. 

With information from a balance sheet, a business owner has a clear understanding of how the business is performing. If all goes well, account reconciliation makes sense and is accurately representative of the business’ transactions to match its bank statements. However, this tedious task and the highly necessary procedure can easily cause unnecessary stress on a financial team and be rife with mistakes, especially as the business grows through new customers or acquisitions. It becomes even more complicated when staff are on holiday or sick during the process.

As such, technology and automation have paved the way to expedite this process, improve accuracy, require less reliance on key staff and save money while doing so. Here, we will take a look at the importance of balance sheet reconciliation, how automation tools can assist in the process, and how manual tasks could become obsolete. Therefore, your accounting team can be freed up to focus their time on human analytical tasks, rather than back-office transactional maintenance.

Table of Contents

What is Account Reconciliation?

What is Balance Sheet Reconciliation?

What is a Balance Sheet Reconciliation Example?

Why is Balance Sheet Reconciliation Important in Financial Close?

What are the Common Pitfalls of Balance Sheet Reconciliation?

How to Overcome Challenges of Balance Sheet Reconciliation?

What are the Costs of Manual Account Reconciliation?

How to Improve & Streamline the Balance Sheet Reconciliation Process?

How Accounting Technology Improves Balance Sheet Account Reconciliation?

How to Streamline Your Balance Sheet Reconciliation Process with SolveXia?

What are Internal Controls?

What is the Balance Sheet Reconciliation Checklist?

What are the Best Practices of Balance Sheet Reconciliation?

The Bottom Line

What is Account Reconciliation? 

Account reconciliation is the process of matching internal accounting records to ensure they line up with a company’s bank statements. Account reconciliation relies on large organisation and the upkeep of invoices, account balances, balance sheet reconciliation and more. 

What is Balance Sheet Reconciliation?

In every business, balance sheet reconciliation takes place in defined intervals, be it monthly, quarterly, yearly, etc. Balance sheets list assets and liabilities, and every transaction must be categorised as one or the other. During reconciliation or the closing of accounts, a business has the chance to ensure that everything has been documented accurately.

As you know, your balance sheet is one of the essential documents in your business. It can help prove creditworthiness for a bank loan or show you and investors how a company is doing. Typically, balance sheet reconciliations involve the closing of the following accounts: 

• Cash 
• Accounts Payable
• Accounts Receivable 
• Payroll Liabilities
• Accrued Liabilities
• Loans and Debt 
• Prepaid Expenses
• Inventory 
  

With all the moving parts, it’s easy to see how things could go wrong or be missed. That’s why it’s useful to follow these simple best practices during the reconciliation process: 

• Have a basic understanding of the accounting principles by which the law operates  
• Maintain up-to-date information 
• Pay close attention to accounts with unusual balances 
• Review the balance sheets closely 
• Review the process overall and look for improvements 
• Use standard templates or consider implementing automation to handle this for you! 

What is a Balance Sheet Reconciliation Example?

Let’s take a look at a practical example of balance sheet reconciliation with the general ledger. 

Matching the subledger to the general ledger is a crucial step to ensure that everything is accurate. 

For example, say a general ledger balance shows: $200,000 

Adjustments: There was a discount granted to a client for $10,000 that has yet to be reflected on the general ledger. 

The sub-ledger adjusted balance would be: $180,000 

Since there’s a fair explanation for why the balances don’t match, it’s nothing to be overly concerned about. However, if there wasn’t a discount granted, then there would need to be further investigation to understand and remedy the differences.

Why is Balance Sheet Reconciliation Important in Financial Close?

Balance sheet reconciliations play a pivotal role in ensuring accurate financial reporting and enhancing operational efficiency through streamlined and automated processes. 

Here's how they contribute to business success:

1. Importance of Balance Sheet Reconciliations

Balance sheet reconciliations are crucial for businesses from both regulatory, compliance, and functional perspectives. As a core accounting practice, they ensure the accuracy of financial statements and provide essential insights into the financial health of your business.‍

2. Real-World Implications of Infrequent Reconciliations

Consider the potential consequences if accounts are not reconciled regularly. For instance, after depositing a check, your bank balance increases, which might not reflect actual cash available if funds have been allocated to pay vendors. Regular balance sheet reconciliations allow businesses to accurately determine their cash positions, facilitating real-time financial decision-making through data automation.

3. Transaction Transparency

Through effective reconciliation, businesses gain detailed insights into their financial activities, identifying areas of spending and earnings. This information is crucial for enhancing operational efficiency and reducing costs.

4. Streamlining the Reconciliation Process

Although traditionally labor-intensive and prone to errors due to lack of oversight, advancements in data automation have transformed balance sheet reconciliations. Automation introduces precision, reduces dependency on key personnel, provides real-time updates, and supports comprehensive audit trails, thus improving overall compliance.

5. Compliance and the Financial Close Process

All businesses are required to complete the financial close process monthly to guarantee that their financial statements accurately reflect their current state and are prepared for the upcoming financial period. Account reconciliation is a key component of this process.

6. Vital Roles of Account Reconciliation

Verifies Transactions

Account reconciliation is essential for accurately matching and verifying records, enabling businesses to close their books on time.

Spots Errors

This process helps identify any omissions, errors, or misclassifications, which could otherwise adversely affect the financial statements.

Resolves Issues

It also provides a mechanism to correct any discovered errors, ensuring the integrity of financial reporting.

Supports Documentation

Well-executed reconciliations lead to reliable audit trails and thorough process documentation, enhancing the credibility of financial reports during external audits.

What are the Common Pitfalls of Balance Sheet Reconciliation?

The Excel spreadsheet was once a beacon of hope for accounting teams everywhere. And, while it’s still a powerful tool, it can easily become a horrible master. If you’re stuck relying on the use of spreadsheets for balance sheet reconciliation, you’re going to run into a slew of hurdles, including:

Disparate Data

With more teams working remotely than ever before, siloed data causes even greater risks. If data is stored across desktops on spreadsheets, it’s not connected, which means it may be outdated or duplicated.

Along with the data existing across computers, it means that your team needs to work to manually collect data from different sources, which is a huge time suck.

Time Wasting

Manual transaction matching takes a lot of time. Combined with the collecting data phase, the cross-referencing means that your team will spend a ton of time being bogged down with manual labour.

Not to mention that the time needed to perform balance sheet reconciliation only grows with your transaction volume and use of multiple payment processors like PayPal, Stripe, and the like.

Manual Errors

As talented as your team is, manual errors are inevitable when working with data by hand. This is increasingly risky when it comes to financial information and the generation of financial statements as it can affect your business’ decisions.

How to Overcome Challenges of Balance Sheet Reconciliation?

The best and simplest way to overcome the manual challenges of balance sheet reconciliation is to remove the need for manual labour! You can do this with the aid of financial automation tools that reconcile accounts for you automatically.

Here are some recommendations to streamline the process:

1. Utilise Automation Solutions

Manual labour creates bottlenecks and runs the risk of key person dependencies. With automation tools implemented, you can prevent error-prone and time-consuming manual tasks. At the same time, this means that your team will then have more time to allocate to value add responsibilities, creative solutions, and strategic thinking.

2. Leverage Pre-Configured Workflows

With automation solutions, you also have the opportunity to make use of pre-designed workflows across the board. Not only does this expedite the process, but it also makes it possible to standardise the process throughout the organisation.

For example, if you choose to deploy a reconciliation tool like SolveXia, you can take advantage of its library of functions and develop your own processes using drag-and-drop functionality.

3. Automate Approval Processes

Last but not least, approval processes are your fail-safe. But, when performed manually, the process can get stuck in paper trails or in the inbox of the final reviewer. Automation solutions like SolveXia make it possible to automate the approval process to ensure that nothing gets stuck in its tracks.

What are the Costs of Manual Account Reconciliation?

Manual account reconciliation is costly on many fronts for businesses, including: 

1. Time

Reconciliation takes a lot of time to manually compile and validate across spreadsheets. Along with the time it takes, there’s opportunity cost as your finance team could be spending their time more effectively on value-add and strategic tasks. 

2. Risk

Given the manual effort, it is also likely to be error-prone, which can lead to larger issues if financial statements are incorrect. It can also negatively affect the financial integrity of an organization, especially if fraud remains undetected. 

3. Compliance

Regulatory compliance and audits are also another concern, especially when it comes to account reconciliation. Manual reconciliation may end up leading to non-compliance, which is costly in its own right. 

How to Improve & Streamline the Balance Sheet Reconciliation Process?

By using account reconciliation software, you can remove the literal paper trail, and your team can be freed from tedious tasks. Automation software will enhance internal controls and increase transparency within an organisation of any size. 

Software systems can pull data from multiple sources, store data safely and map and cleans the data, so the necessary data is input into the right places making reconciliation more straightforward, more accurate, quicker and easier. If the process were less demanding of personnel, you would likely perform it more frequently, for example, weekly or even start new reconciliations. Therefore, you would always have a pulse on your organisation’s financial health. 

How Accounting Technology Improves Balance Sheet Account Reconciliation?

Given the critical nature of balance sheet reconciliation, it’s paramount for it to be accurate, completed in a timely manner, and streamlined. That’s where accounting technology comes into the picture. 

Account reconciliation software, such as SolveXia, assists greatly by providing:

1. Data Extraction

One of the most time-consuming aspects of performing account reconciliation is extracting and compiling the necessary data from the various systems, and even possible disparate spreadsheets. Instead, a reconciliation solution like SolveXia combines all your data and systems to centralize the records you need to compare. 

2. Transaction Matching

Along with centralizing the data, SolveXia performs accurate transaction matching in just minutes, as opposed to the hours, days, and weeks it may take to do manually. 

3. Reporting

Automation software also provides reports about reconciliation to grant transparency and internal control within the organization. With this kind of access, stakeholders and management can remain confident in the company’s financials. 

4. Audit Trails

A balance sheet reconciliation tool like SolveXia stores an audit trail of everything that occurs during the reconciliation process. This is a great way to be able to protect information, improve processes, improve compliance, and prevent fraud. 

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All in all, automation leads to greater efficency, compliance, and accuracy. With fewer errors, saved time, and accessible data, finance teams and management alike can overcome the countless challenges of manual account reconciliation. 

How to Streamline Your Balance Sheet Reconciliation Process with SolveXia?

SolveXia is a low-code balance sheet reconciliation platform that automates spreadsheet-driven data preparation and manual processes without needing IT. Finance teams choose SolveXia to make their staff more productive and successful.

Once implemented, SolveXia is easy to use by anyone on your team because it requires no coding and boasts drag-and-drop functionality. Users can select from templated workflows that are pre-built or design their own. 

With SolveXia, finance teams can streamline every type of account reconciliation across systems. Its intelligent, process-centric application brings together data processing and matching so teams can complete account reconciliation 100x faster with 90% fewer errors. 

Features included a unified data platform that enriches data from your existing systems and a big data engine with the power to reconcile millions of transactions in just seconds. Its smart matching capabilities enable it to reconcile complex, one-to-many and many-to-many scenarios without issue. 

The software provides digestible and customizable dashboards so stakeholders and management can understand the status of reconciliation at any point in time. 

Companies can use SolveXia to reconcile:

• Accounts payable 
• Accounts receivable
• Bank statements
• Cash allocation 
• Credit card statements
• Intercompany and intersystems 
• Payments 
• NAV and holding
• GL acounts 

Interested in seeing how SolveXia works in action? Request a demo today.

What are Internal Controls?

When working on balance sheet reconciliation within an organisation, more than one person likely has access to the spreadsheets and account information. As such, any changes that are made are not always recorded. So, if one person touches a document and inputs an error, your entire process could become negatively impacted. Without version control or internal controls to regulate information accuracy, you are putting your whole business at risk. 

How do you control for this? 

Since you can’t rely solely on auditors, internal controls putting your team in a position to be the first line of defence with reviews and strick checks carried out by team members on each other work, the second line of protection can be a dedicated department that oversees account reconciliations. For example, an internal compliance team that checks for any weaknesses in the process. However, all of the above can be significantly optimised and better protected with the aid of data automation technology. With software, you can create a version history of stored data, and automatic uploads or data feeds, as well as data restrictions on individuals. This means every action can be tracked and traced back and when an error arises. This means not only will you be able to catch it quickly, but you will be alerted to the cause so you can correct and also fix the erroneous process step so stop it repeating. 

What is the Balance Sheet Reconciliation Checklist?

Using an automation solution (or working through balance sheet reconciliation manually) requires that the following four main steps are taken care of. Consider this your checklist for success so you can make sure you’re hitting every mark:

1. Collect Documentation

Pull together your internal and external documentation. Necessary documents include: bank statements, receipts, general ledger or account balance export, and the like. Automation solutions will pull together all this data for you in no time.

2. Compare Data Across Documents

The heart of reconciliation is transaction matching. With all your documentation in front of you, it’s time to cross-check. As you can tell, this is what can take a ton of time (unless you automate it!).

3. Adjust Entries

Should there be any discrepancies that were found, adjustments to journal entries will need to be made to rectify them. Version control is of paramount importance here!

4. Foot the Balance Sheet

This is where you ensure that balance sheet totals equate your assets to the liabilities and equity. That’s the last step!

What are the Best Practices of Balance Sheet Reconciliation?

Balance sheet best practices involve proper setup and review. Here’s an overview of what you should check for: 

Setup

• Identify accounts to reconcile 
• Ensure that the appropriate accounting principles are being used (whether it’s for the United States or international) 
• Run relevant reports
• Make sure dates are recorded properly
• Define an execution procedure 
• Place dedicated personnel in charge 
  

Review 

• Ensure timely review of reconciliations while accounts are still open to modifying for any errors
• Provide all the necessary documents for analysis (i.e. general ledger and bank statements)
• Make sure the reconciliation supports the balance itself 

The Bottom Line

Balance sheet reconciliations should provide more benefits than harm to your business. 

Since balance sheets are like a report card for your business, they should accurately reflect its performance within any given time. 

With automation tools, you and your financial team can sleep easier at night, knowing that human errors can be avoided. The world of spread out spreadsheets and manually tracking transactional data is a world of the past. Welcome to a new frontier where software systems and data work together to help your business function better, faster and stronger.

To see how SolveXia can help your company perform its balance sheet reconciliations, request a demo!