What Is General Ledger Account Reconciliation?

Written by sheila shanker
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What Is General Ledger Account Reconciliation?
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General ledger account reconciliation is a common task in the accounting process. An account reconciliation is basically a comparison between balances in the general ledger and other documentation to assure that accounts are correct. It's often a long and detailed process, involving many numbers and logical concepts.

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Significance

Reconciliations assure accountants and others that numbers in the general ledger are correct. This is important, because these numbers are compiled to produce financial statements. If the numbers are wrong, financial statements will show wrong information.

It's easy to make mistakes in accounting due to the high volume of transactions and detailed information. Sometimes reconciliations find problems with the other party's reports. For example, you may know that you deposited £325 in the bank, but the bank statement only shows a £260 deposit. You can follow up with the bank about this discrepancy and ask what happened to the £65 missing in the bank.

Balance Sheet Accounts

Balance sheet accounts in the general ledger are often the focus of reconciliations. Cash and investment accounts are usually reconciled against bank or brokerage statements monthly. Accounts payable and receivable are reconciled against ageing reports to make sure that the modules and general ledger are in sync. Common discrepancies in this area are journal entries made in the general ledger only, and unposted transactions "stuck" in the modules, not changing general ledger numbers.

Income Statement Accounts

Accounts reported on income statements may be reconciled, such as payroll accounts, which are often reconciled to outside payroll reports such as W-2s. Depreciation expense per general ledger may reconcile with depreciation per spreadsheets or per reports in a fixed assets module. Often, income statement accounts can be reviewed for reasonableness. For instance, if the rent each month is £650, then the year-end rent expense should be £7,800. If it isn't, then there may be a mistake in that account.

Discrepancies

Often differences are found when performing reconciliations. They can be temporary, permanent or "needs-work" type of differences. Temporary differences usually don't require any adjustment. An example of this would be deposits-in-transit, deposits that aren't yet showing up on bank statements. Permanent differences are those that remain constant through time. For example, a journal entry may have been made in the general ledger years ago, instead of using the fixed asset module; this will cause a permanent difference between the fixed asset module and general ledger. The last type of a discrepancy, needs-work, usually involves making adjusting entries in the books to correct or recognise a transaction, such as bank fees or errors in the books.

Considerations

Computer systems have helped with much of the reconciliation process. Many systems allow for bank reconciliations to be performed as part of the program functionality. Bank balances are input and cleared transactions are marked --- the leftover is usually outstanding checks or deposits-in-transit.

When software doesn't offer this function, accountants may use spreadsheets to keep track of reconciliations. Reconciliations are rarely done manually on paper unless they're extremely simple.

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