Every business owner wants their firm to have clean books and records. General ledger reconciliation is a standard procedure that can help with that. It confirms that every entry is up-to-date and in line with the business’s transactions. In today’s blog post, we’ll delve deeper into the intricacies of the GL, exploring its critical role in your operations.

What is General Ledger Reconciliation?

Every firm has a general ledger. It encompasses:

  • accounts receivable (AR), which tracks money owed by clientele;
  • customer invoices, which specify the amounts billed for products and services;
  • payments received from clients;
  • payroll, which documents worker compensation and associated expenses.

This process involves examining and aligning entries in a company’s general ledger (GL) with the corresponding subledgers (SLs) to pinpoint any inconsistencies. Through reconciliation, discrepancies are highlighted, which lets teams look into and deal with issues.

When it comes to the review of ledger transactions, it’s about ensuring all activities recorded in the general ledger are spot on. It verifies the account balances and income statements are correct. Typically, this task falls into the hands of accounting experts who thoroughly analyze the data within the GL.

Why is It Important?

Even little mistakes in records may have a significant negative impact on a business. The Association of Certified Fraud Examiners (ACFE) estimated — fraud alone costs businesses a staggering 5% of their year-on-year profits. The typical damage in each instance is $125,000. These figures demonstrate the great stakes involved in prudent decisions and the necessity of accurate general ledger reconciliation.

For your firm to function smoothly, you can turn to the highly skilled experts from BooksTime, who can help you with the GL reconciliation process. It opens up many advantages:

  • You may find unauthorized or potentially fraudulent entries, which helps protect your business from losses. Catching suspicious records or signs of data manipulation early on adds an extra layer of security.
  • When your data meets the requirements of your country’s legislation, you can look forward to the inspection season without fear. You protect yourself from fines and comply with accounting rules.
  • Investors and partners can support you in the future because they have accurate reports about your company’s financial condition.

The process also functions as the backbone of the double-entry system of accounting, keeping the balance of debits and credits. It’s the fundamental element of sound financial accounting, which affects management’s reliability and transparency.

The GL Reconciliation Process

A team of bookkeeping experts follows a systematic procedure to ensure accuracy and control over financial data in all general ledger reconciliations. Let’s take a look at the common steps:

  • Step 1. The initial stage focuses on sorting out the accounts that need reconciliation. The priority goes to accounts that play a crucial role in the reporting, as these have the biggest impact.
  • Step 2. Then, bookkeepers gather the required supporting data, including every transaction that should be allocated to the account balance. The initial sources are financial statements, which offer a more detailed picture of every transaction’s circumstances.
  • Step 3. They vigilantly go through each transaction to ensure its accuracy and reconcile it to the balance in the GL. The transactions should ideally match the reported balance in the ledger, but there could be variations.
  • Step 4. Should any inconsistencies occur, bookkeepers try to determine what caused it. After figuring out the reason, they choose the appropriate follow-up action. If a quick fix isn’t necessary, the disparity becomes an “open item” which will be considered during further general ledger reconciliation rounds.
  • Step 5. Bookkeepers might need to submit an adjusting journal item after finding and fixing any inconsistencies. In the end, all accounts must be balanced before proceeding to the following reporting cycle.
  • Step 6. Thorough records of every stage are essential, from the preliminary steps to any inconsistencies discovered and the remedial measures implemented. This documentation ensures compliance with internal controls and serves as a valuable reference for the team.
  • Step 7. Examining the results carefully is also important. When you ensure that every record complies with the company’s requirements, you support the reconciliation’s correctness and reliability.

Each step is meticulously carried out to preserve the records and offer dependable data for reporting.

What Is a General Ledger Reconciliation?

Common Errors in GL Reconciliation

It may take some time to establish a pattern in terms of account reconciliation, but once a methodical procedure is in place, it gets simpler to handle each cycle. But we’re all prone to mistakes — so, during each accounting period, watch the following areas.

  • It’s important to make sure you’re looking at the right data, even though doing a general ledger reconciliation a few days late won’t have disastrous consequences. To avoid combining entries beyond the intended time, restrict your evaluation to transactions reported until the close date. Accounting software frequently lets you define a reporting period.
  • Errors occasionally occur while entering data into the GL by hand, such as writing a debit rather than a credit or flipping numbers. A keen eye for detail helps identify these problems, even when human error is unavoidable. To lessen the possibility of blunders, automate journal entries wherever you can or utilize established templates.
  • Inconsistent methods or unclear regulations lead to duplicate entries. These may also occur due to accounting software posting some items automatically, including accruals or depreciation. To avoid duplicate submissions, ensure every team member knows their posting duties.
  • It’s common practice to refer to accounts by their numbers rather than their names when inputting data, which may cause transactions to be sent to the incorrect account. This error may make the account reconciliation process more difficult. However, account coding errors are less likely when your chart is well-organized and has distinct account names and numbers.

Many accounting systems permit notes or succinct explanations. So, when you add reminders, you can ensure you’re publishing to the right account.

Tools and Solutions for Automating GL Reconciliation

Forward-thinking business owners are already using automated systems. These are some of the best solutions that speed up the reconciliation:

  • Oracle NetSuite stands out as a solution designed to enhance business operations through real-time insights and smart billing. The software’s strength lies in its scalability. It makes it a powerful choice for enterprises looking to integrate multiple business functions within a single cloud-based system.
  • Sage is a versatile accounting tool, equipped with a range of features that facilitate financial management for firms of different sizes. One of Sage’s notable features is its integrated reconciliation function, which helps simplify tracking and managing income, sending quotes, and invoicing clients. As a cloud-based solution, Sage offers the benefit of remote accessibility, while its scalable structure means it can grow alongside a business as its needs evolve.
  • QuickBooks is widely known for its intuitive interface, making it an accessible choice for many business owners who need accounting software that is easy to learn and use. With QuickBooks, users gain access to efficient reconciliation instruments for managing invoices and bank transactions, as well as solid reporting features that cover essential financial metrics.

Take into account aspects that will ensure scalability and productivity. Start by assessing how well the product synchronizes with your data sources, such as bank and credit card bills, and how well it works with your current systems. To promptly identify differences, look for systems with strong error-detection capabilities and adaptable features that complement the particular reconciliation methods used by your firm.

Benefits of Bookkeeping Software

GL reconciliation programs can bring numerous perks to your firm. These are the primary perks of using special programs:

  • The program easily imports and reconciles data. It helps to centralize data and analyze it much quicker.
  • There is no need to manually check records line by line — the software analyzes all the info and confirms the reconciliation.
  • If there are errors or something does not match, the system will point it out to you so you don’t make a mistake. Therefore, your accountants will be able to see this alert and correct the problem.
  • You save time for your accountants — they don’t have to work on routine tasks that a computer can do. It’s better to give them more complex questions requiring an expert’s opinion.
  • The software performs a range of duties — entrust it with data entry, storage, and creation of audit journals and individual financial reports.
  • When a person does not influence the process, there is no chance of human error. Therefore, your data will be ultra-accurate.

So, you may turn a painstaking ledger account reconciliation into a quick task with your computer. At the same time, the quality of the work will not decrease — as a result, you will still receive accurate, verified records in your preferred format.

Final Words

If you want your books to be transparent and error-free, you might need to reconcile GL accounts. As a result, you’ll be able to get complete and up-to-date reporting which will help your firm meet all the legal obligations and you’ll be able to make well-informed decisions with an eye on the complete financial picture.

Moreover, your investors will also be able to understand your work — accurate numbers and clean reconciliation reports will only reinforce their trust in you. Making GL reconciliation a top priority lays a solid foundation for long-term financial growth and stability.

BooksTime offers the help you need. We focus on assisting companies in streamlining their accounting routine, such as GL reconciliation, so they concentrate on growing their business. We’re here to ensure the transparency of financial records with the top talents in our team and top-of-the-line technology. Businesses working with BooksTime may rest easy knowing their records are current and regularly meeting reporting deadlines.