Balance Sheet Account Reconciliation

What is balance sheet account reconciliation?

The balance sheet reconciliation definition covers the accurate checking of all account balances before reports are finalized, so that there are no errors or misstatements. It is one of the most critical forms of financial reconciliation that enables informed decision-making and trust with all stakeholders.

Why is balance sheet account reconciliation important?

Balance sheet account reconciliation is critical for organizations to ensure that their financial reporting is accurate and compliant with regulatory mandates.

Regular balance sheet account reconciliation enables the CFO’s office to proactively identify discrepancies and frauds — and take prompt corrective action to prevent financial loss. It is also a vital means that enable informed investment decisions.

How does the balance sheet reconciliation process work?

The balance sheet account reconciliation checklist consists of the following key steps:

• Identification of the accounts that need to be reconciled, such as cash, AR, AP, inventory, etc.
• Collection of information for account reconciliation, including bank reconciliation and intercompany reconciliation
• Review of the collected data with the general ledger entries for correctness and accuracy
• Investigation of any discrepancy detected, and make the necessary adjustments
• Documentation of the completed account reconciliation

How is subledger reconciliation different from balance sheet reconciliation?

Subledger reconciliation is a part of balance sheet reconciliation. This reviews the transactions recorded under accounts payable (AP), accounts receivable (AR), and fixed assets in their respective subledgers with corresponding transactions in the general ledger (GL). This ensures that the balances have no discrepancies.

What are the common challenges in balance sheet reconciliation?

Common challenges in balance sheet reconciliation include:

• Disparate and disconnected data stored at different systems
• Inadequate internal controls
• Manual processes and spreadsheet usage, resulting in errors
• Inaccuracies caused by shortened cycles

What are the best practices in balance sheet reconciliation?

Balance sheet reconciliation can be made more efficient and effective by:

• Leveraging automated balance sheet reconciliation (including account reconciliation automation) through various automated reconciliation tools and with pre-configured routines
• Deploying technology solutions to facilitate multi-department collaboration
• Establishing clear policies and robust internal controls
• Regular review and risk assessment of the reconciliation process. Monthly balance sheet reconciliations is a good way of ensuring that general ledger account balances match supporting documentation