Carry out balance sheet reconciliations

Why carry out balance sheet reconciliation? 

Reconciling the balance sheet in your business can help you identify any discrepancies or errors in your financial statements. By cross-checking balances against each general ledger entry, you can ensure that the numbers are accurate and have the necessary support and evidence to back them up.  

How to carry out balance sheet reconciliation? 

Balance sheet reconciliation involves comparing balances in the balance sheet to the sub-ledgers and support documents such as bank statements, credit card statements, and accrual schedules. This process ensures the accuracy of your business's financial statements. 

Here's a general guide on how to carry out balance sheet reconciliations: 

1. Gather supporting documentation: Collect bank statements, any agreements with your vendors or customers, and invoices to reconcile balances. 
2. Communicate with your vendors, customers or staff: If you notice differences after you’ve compared your records on the general ledger and supporting documents, reach out to your vendors or customers and internal staff. This allows you to identify any differences in your current business processes. 
3. Review General Ledger balances: If there are any errors that need to be corrected or updated, make your adjustments by comparing balances on the balance sheet to the sub-ledger as they must match. For example: 
   1. For accounts receivable, you'd run an aged receivables report to understand how many customers owe the business money and how much of this is past due. 
   2. For accounts payable, you’d run an aged payables report to show supplier accounts that have an amount that has not been paid yet.  See what is and will be due to help you keep track of payments. 
   3. For inventory reconciliation, you’d reconcile inventory from the value entries to the item ledger entries against the general ledger. Run the Inventory Valuation report that’ll show you the totals of your finished goods coming from the inventory posting group. The total of all the amounts should equal your amount in the chart of accounts. 
   4. In terms of accruals, there are series of recurring journal entries that need to be posted. This could be an amortisation entry, insurance, payroll adjustments or rent. When you need to adjust, you can post recurring journals. You need to support your accrual with documented records that show calculations or reasons for accruals. 
4. Adjustments are reviewed and approved: Any adjustment you update needs to be reviewed and approved by the delegated authority of your business.  
5. Run reports to support your balance sheet account: As part of the reconciliation process, accountants need to run reports that support the main ledger. Explore other operational reports that may assist in the reconciliation process, such as Financials Reports that used to be known as account schedules, and standard reports.  
6. Monitor and Maintain Controls: To enhance balance sheet reconciliation, your business should establish clear policies and robust internal controls. Implement and monitor internal controls to prevent errors and ensure the accuracy of financial information. This may include segregation of duties, approval processes, and periodic internal audits. 
7. Continuous Improvement: Continuously assess and improve your reconciliation processes based on feedback and changes in business requirements.  
8. You’ve now completed the process to carry out balance sheet reconciliations. 

What’s next? 

Find out how to run a trial balance.  

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