General Ledger Reconciliations: Ultimate Guide

At the end of each accounting period, there is a month end close checklist that businesses have to get through. General ledger reconciliations are a part of this process, as is payroll reconciliation, revenue reconciliation, cash reconciliation, and expense reconciliation, to name a few.

The list goes on and on, which is why companies utilise finance automation solutions to streamline and expedite the processes with accuracy. In this article, we’ll review what general ledger reconciliations are and why they matter.

Coming Up

What is General Ledger Reconciliation?

How are General Ledgers Used?

How to Perform General Ledger Reconciliations?

What are the Types of General Ledger Reconciliations?

How to Compare Beginning and Ending Account Balances?

What are Common General Ledger Reconciliation Problems?

What are the Benefits of General Ledger Reconciliations?

How do General Ledger Reconciliations Tools Work?

Why Use Automation for General Ledger Reconciliations?

The Bottom Line

What is General Ledger Reconciliation?

A general ledger records financial transactions and groups them into the following categories: assets, liabilities, equity, income and expenses.

General ledger reconciliations ensure the validity of account balances that are displayed on the organisation’s general ledger. In order to do so, accountants must compare general ledger account balances with external documents and data.

If there are any discrepancies, it’s of utmost importance to rectify them before closing the books as they’ll impact the company’s financial statements and reports.

How are General Ledgers Used?

For every transaction that takes place, it is documented on the general ledger in at least two accounts, when using the double-entry system of accounting. The transaction will be documented as both a credit and a debit.

For example, if you buy equipment for your company, it gets recorded as a debit in your assets account and a credit in your cash account for the same amount.

Back when general ledgers were only maintained by hand, they were drawn like a T, known as a T-account, so it was easy to see how each transaction zeroed each other out. However, most general ledgers are now stored digitally.

As such, it’s helpful to have an accounting automation software like SolveXia that can perform general ledger reconciliations automatically by connecting to your existing financial systems, including legacy systems.

This way, all your data is centralised and neatly stored and secured in one place for its use. It also reconciles your data from many sources in seconds. This is particularly helpful if you have a high volume of transactions from multiple payment providers and need to match them to bank statements.

How to Perform General Ledger Reconciliations?

To perform general ledger reconciliations, it entails the following steps:

1. Compare Balances

Start by checking that the prior accounting period’s ending balances for your asset, liability, and equity accounts match that of this accounting period’s start.

Accounting software makes this seamless to confirm. For your temporary accounts, like revenue and expenses, those should be at zero to begin.

2. Reconcile Your Accounts

Now, it’s time to go through each account with a fine tooth comb and ensure that all transactions are properly recorded. As you can imagine, this takes a lot of time when performed by hand.

You have multiple accounts to get through, and the higher the volume of your transactions, the longer you can expect this to take. That is, of course, unless you’re using automation software to perform the transaction matching for you!

3. Resolve Discrepancies

If you locate discrepancies between your general ledger accounts and external documentation, it’s important to investigate the reasoning. In some cases, the reasoning is justified, such as timing differences. In other cases, it could be a mistake or fraud.

4. Prepare Journal Entries

If a journal entry is needed to resolve any discrepancy, it’s up to the accountant to input it and document the reasoning for it. With SolveXia, all data is stored after reconciliations, so should the need for an audit occur, it’s easy to understand what action was performed and why.

What are the Types of General Ledger Reconciliations?

There are five primary types of account reconciliation that take place during the financial close, namely:

1. Bank Reconciliation

Bank reconciliation is the comparison of your ledgers to your monthly bank statements.

2. Vendor Reconciliation

Vendor reconciliation compares vendor-provided statements with your accounts payable records to ensure that you paid your vendors the correct amount.

3. Customer Reconciliation

Customer reconciliation checks invoices sent to accounts receivable ledgers with the amount that customers pay.

4. Business-specific Reconciliation

Business-specific reconciliation compares internal records at the beginning and end of each financial cycle.

5. Intercompany Reconciliation

Intercompany reconciliation is conducted by parent companies in an effort to unify accounts and ledgers from its subsidiaries.

How to Compare Beginning and Ending Account Balances?

For some accounts, comparing beginning and ending balances is easy. But for others, such as expense accounts, there’s no external report you can run to show you what the ending balance should be.

In these cases, it could be helpful to use an account variance, which displays the difference between the beginning and ending balance. This way, you can check that your expenses add up to that variance.

Account reconciliation software, such as that offered by SolveXia, will save you time and allow you to focus on overall business strategy as it automatically manages your account reconciliations for you.

This way, you can stress less about comparing balances as the system will execute transaction matching and generate reports.

What are Common General Ledger Reconciliation Problems?

Performing general ledger reconciliations is vital to make sure that your accounts are in proper order. Whether you choose to do so on a monthly, quarterly, or annual basis, here are a few problems that may arise:

1. Journal Entry Mistakes

Human errors are inevitable. When your team is running through thousands of transactions and handling all that they do, mistakes are likely to happen. They may record a transaction as a debit rather than a credit (or vice versa), or simply transpose a set of numbers.

2. Duplicates

Without strict accounting policies to follow or processes in place, your team may fall prey to duplicate entries.

If multiple hands are working on accounts, then they may not realise someone else has already entered a record, so the transaction will appear twice.

Finance automation software would remove this risk because it handles all record keeping for you.

3. Improper Coding

It may also be the case that you categorise a record incorrectly and to the wrong account name. This will end up throwing off more than one of your accounts.

What are the Benefits of General Ledger Reconciliations?

Performing general ledger reconciliations is a necessity for businesses. There are plenty of benefits that come along with it that add value to the business and its operations.

These include:

1. Fraud Prevention

By conducting reconciliation, it makes it possible to spot fraud early on. If you notice any suspicious activity taking place, you can nip it in the bud.

2. Better Cash Flow

Reconciling accounts provides a clear understanding of how the business uses its money. You can see incoming and outgoing cash and have the clarity to make informed business decisions to optimise cash flow.

3. Fix Mistakes

In the event an error did occur, general ledger reconciliations make it so you can remedy them before bigger problems arise.

How do General Ledger Reconciliations Tools Work?

While the intricacies of performing general ledger reconciliations may seem undesirable at first, the benefits outweigh the hardship. This is especially true when you use general ledger reconciliation tools.

General ledger reconciliations tools, like SolveXia, do the intricate work for you! The system is able to combine all your data, cleanse it to remove any duplicates, and then gets to transaction matching between data sources.

Should a record be mismatched or incorrectly noted, the system will alert you to investigate. Once you rectify the issue or add a new record, the system will store everything that took place for historical reference or for auditing purposes. SolveXia is also able to automatically generate reports.

Why Use Automation for General Ledger Reconciliations?

SolveXia and automation tools take the pain out of reconciliation and month-end close processes.

As noted right above, the system is able to automate each step. As a result, your team and organisation benefits from:

• Time savings
• Error reduction
• Risk prevention
• Monetary savings
• Improved workflows

At the same time, SolveXia and similar automation software will remove key person dependencies and reduce bottlenecks within your company.

For example, if you have one person in charge of executing your month-end close process and they are out sick at a key time, then you will miss your deadlines. But, business must go on.

With automation software, anyone can press “start,” so to speak, on the process, and the software will manage it.

Automation solutions also add a layer of visibility for your organisation. This way, stakeholders and management always have a finger on the pulse of what processes are taking place and what may be needed to continue progressing.

SolveXia does more than reconciliations. You can also utilise the software for expense analytics, rebate management, APRA reporting, regulatory reporting, and more.

The Bottom Line

General ledger reconciliations isn’t something you can skip over. It’s necessary to make sure that all of your accounts are in order before you close the books on the accounting period.

With the many types of reconciliations required, the all too time-consuming process is often looked at with disdain by accounting professionals.

But, with the aid of finance automation software like SolveXia, your crucial accounting processes become a breeze. From data collection to comparison to reporting, everything is managed with accuracy, speed, and ease!