Meaning, Importance, Processes, Examples and Steps in Balance Sheet Reconciliations

len Alfred Ajibola - Fri, 25th January, 2019 @ 01:47:36 AM

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Meaning of Balance Sheet Reconciliation:

To begin with, Reconciliation is the process of matching, comparing and agreeing information that exists in two locations.

Balance Sheet Reconciliations is a process of comparing the amounts on a balance sheet general ledger accounts to the details making up those balances, so that all their details agree or match.

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Processes of Balance Sheet Reconciliation

Below are some recommendations to follow during Balance Sheet Reconciliations:

  1. All balance sheet accounts should be reconciled periodically, quarterly or annually so as to verify that all items have been accurately posted to the account.
  2. During the process of acount reconciliation, we will have to analyze the differences and make corrections so that the information is correct, complete and consistent on both accounts.
  3. With the balance sheet reconciliations, it is important to compare the trial balances of both payables and receivables with the respective aging schedule balances during reconciliation.
  4. In situations where the trial balance is more than the balance of the aging schedule, then it is likely that the entries are placed directly to the general ledger instead of the sub-ledger. One will need to analyze these entries and then relocate them to the sub-ledger.
  5. During balance sheet reconciliation, you compare the general ledger trial balance of the account to another source which could be internal; for instance, a sub-ledger or a bank statement.

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Importance of Balance Sheet Reconciliation Process

Below are some reasons why we should reconcile Balance Sheets:

  1. When we fail to properly reconcile our accounts, some of the transactions that we may have recorded incorrectly (by error) could adversly impact our resources and business.
  2. Balance sheet reconciliation process is necessary because it helps us to identify any errors before closing.
  3. It is one of the method that confirms an account to be accurate and thorough for record purposes.
  4. It is important to reconcile items under the corresponding balances and then label them.
  5. Lastly, it is important is to resolve differences and errors by proper investigatation and explanations on the events of concern.

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Examples of accounts that require Balance Sheet Reconciliation

  • Cash
  • Payroll liabilities
  • Inventory
  • Accounts receivable
  • Accounts payable
  • Accrued liabilities
  • Prepaid expenses
  • Fixed assets
  • Loans, Tax, Mortgage and other debt

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Steps involved in Balance Sheet Reconciliations

  1. Compare the title and description of the account.
  2. Make sure that the appropriate date(s) are used.
  3. Ensure that the reconciliation supports the balance of the general ledger.
  4. Always review unidentified differences.

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Alfred Ajibola is a Medical Biochemist, a passionate Academician with over 7 years of experience, a Versatile Writer, a Web Developer, a Cisco Certified Network Associate and a Cisco CyberOps Associate.

Amazing facts in Accounts

It is believed that Bookkeeping is the only English word to contain three sets of double letters repeatedly.

please read our article on bookkeeping vs Accounting here