Overview: What is a General Ledger Reconciliation?
A general ledger reconciliation is an activity performed by accountants to verify the integrity of account balances on the company’s general ledger. It involves comparing the general ledger account balances with other independent systems, third-party data, or other supporting documentation such as statements or reports, to verify that the balances are complete and accurate.
It also includes thoroughly investigating any discrepancies that are identified and taking the proper corrective actions to resolve them.
General ledger reconciliation is a key part of the financial close process that is used to verify a company’s financial information before releasing it to the public on financial reports.
How to Prepare a General Ledger Reconciliation
This general ledger reconciliation process takes place after the end of a financial reporting period. Accountants go through each account in the general ledger and verify that the balance listed is complete and accurate. To complete a general ledger reconciliation, accountants typically follow these steps:
1. Obtain necessary details of the general ledger account
The first step in preparing a general ledger reconciliation is to obtain the necessary details of the general ledger account that you wish to reconcile. For most reconciliations, you will need the ending balance of the general ledger account—the balance as of the period end date. Depending on the account type, you may also need the activity for the period—details of debits and credits to the account.
2. Reconcile ending account balances to supporting documentation
Once you have the necessary details of the account balances, the next step involves comparing the general ledger account balance to information obtained from independent systems, third-party data, or other supporting documentation, such as bank statements and credit card statements. This is an important part of the reconciliation process where the accountant substantiates the general ledger account balances.
3. Investigate discrepancies
If the general ledger account balance cannot be substantiated and discrepancies are noted between the general ledger account balances and the supporting documentation, accountants research, investigate, and take appropriate action to correct the discrepancies. Discrepancies may arise due to timing differences, missing transactions, mistakes, or other reasons. Not all discrepancies indicate an error in the general ledger account balance, so it is important to investigate each discrepancy.
4. Prepare adjusting journal entries, if necessary
If it is determined that a corrective journal entry is needed, accountants should prepare a journal entry to correct any errors.
The reconciliation process, including the investigation of any discrepancies and adjusting journal entries, is documented together, and all of this information is stored for audit purposes. The general ledger reconciliation process is a necessary step that must be completed before a company can issue financial statements.
Benefits of General Ledger Reconciliation
General ledger reconciliations are an important step in the financial close process to ensure the completeness and accuracy of the general ledger and financial statements. Performing general ledger reconciliations helps to increase accuracy, prevent significant errors, and identify adjustments in a timely manner.
Performing general ledger reconciliations provides comfort that the activity captured and the ending balances are accurately stated, as the balances are substantiated with supporting documentation.
If a discrepancy is identified during the general ledger reconciliation process, the discrepancy can be investigated, and the necessary steps can be taken to ensure the discrepancy is handled appropriately. This helps to prevent errors, which in turn increases the accuracy of the financial statements.
If discrepancies are identified and adjusting journal entries are needed, the adjustments can be recorded, which in turn increases the accuracy of the financial statements.
How Does General Ledger Reconciliation Software Work?
General Ledger reconciliation software automates all steps in the general ledger reconciliation process. It imports data from all sources, including ERP and other general ledger systems, bank files or statements, and credit card statements.
It then compares account balances between these sources and can auto-certify accounts when data matches, and identify any discrepancies that need to be properly investigated by accountants. This prevents accountants from having to verify the balance of every single account and allows them to focus on the analysis of discrepancies.
General ledger reconciliation features include:
- Automated review and approval workflows, with proper segregation of duties
- Reconciliation templates and checklists to standardize processes
- Integrated storage of supporting documentation for easy review and audit
- Link to applicable policies and procedures for easy reference
Streamline Reconciliation with Automation
There are many steps of the general ledger reconciliation process that can be streamlined with automation. For example, gathering data such as the general ledger details and supporting documentation traditionally requires manual effort to log into various systems, record balances, download reports or take screenshots, etc.
This process can be automated, reducing time and risk of error. Other opportunities for automation may include auto-certification of general ledger accounts, workflows, and more.
What Solutions Does BlackLine Offer?
BlackLine Account Reconciliations is designed to automate and streamline all aspects of the General Ledger Reconciliation process. It also adds proper controls to General Ledger Reconciliations.
This product is capable of importing data from almost any source, and is compatible with all major ERP systems. Rules for account balance certification are configurable and can be set based on account risk-profile.
Auto-certification capabilities dramatically reduce the manual tasks being performed by accounting staff, and free accountants to focus on analysis. When discrepancies do exist that require research, workflows route them to the account owner and put proper controls in place to ensure proper review and approval of reconciliations and to maintain required segregation of duties.
In addition, the product also contains customizable templates, checklists, and integrated storage for supporting documentation to ensure that reconciliation processes are standardized throughout the organization. Centralized dashboards provide full visibility into the status of the reconciliation process.
BlackLine Transaction Matching works together with the Account Reconciliation product when there is a need for automated high-speed analysis of transaction details within an account. This works by identifying transactions that do not match between systems, simplifying the reconciliation of accounts with high numbers of transactions.
When journal entries are required to correct discrepancies, BlackLine Journal Entry integrates and automates this portion of the process.
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