In this article, we will review balance sheet reconciliation best practices and share more tips about automation software. So the next time you need to reconcile your balance sheet, you don’t need to worry about whether you’re matching up-to-date data with up-to-date data. If you have a discrepancy on the balance sheet, look at the supporting evidence to see what might have gone wrong.
Discrepancies can arise due to timing differences or errors, making bank reconciliation a crucial process for ensuring that cash accounts on the balance sheet are precise. Despite the promise of automation, companies still devote significant resources – human and otherwise – to validating numbers against their ERP and other business systems to optimize the close process. Live integration with ERP systems, bank statements, other source systems and business applications ensure that you always have access to the most accurate data for reconciliation purposes.
In financial records, like the general ledger and trial balance, fixed assets have a debit balance, and accumulated depreciation has a credit balance to offset fixed assets. Many companies are under pressure to shorten their financial close cycle to provide timely and accurate financial information to stakeholders. Although, a fast close is impressive, but it can also compromise quality for speed. Ensure the ending balance on the general ledger matches the supporting documents. Then, document the entire reconciliation process by creating a report or summary. A tool like SolveXia connects to any of your existing data sources, executes transaction matching quickly, and can alert you if there are any discrepancies that require reconciliation.
With automation tools implemented, you can prevent error-prone and time-consuming manual tasks. At the same time, this means that your team will then have more time to allocate to value add responsibilities, creative solutions, and strategic thinking. Not to mention that the time needed to perform balance sheet reconciliation only grows with your transaction volume and use of multiple payment processors like PayPal, Stripe, and the like. A team would be lost without its head coach keeping everybody on the same page.
This may involve adding or removing transactions, correcting errors, or updating balances. Next, compare the information from the general ledger to the supporting documents. This will help identify any discrepancies or errors that need to be addressed. With an automation tool like SolveXia, you can streamline and standardise reconciliations to avoid the otherwise time-consuming nature of the process. It’s worth looking over your entire reconciliation process to see if there are any ways time or resources could be saved.
If things are done correctly upstream, it lessens the need for reconciliation. For strategic finance and business decisions to be made in a timely and effective manner, business owners need to be confident that they’re getting accurate information from the balance sheet. The trial balance that lists and totals general ledger account balances should have equal debit and credit totals to reflect double-entry accounting and posting of all accounts to the general ledger. Fixed assets should be rolled forward by ensuring that purchases, sales, retirements and disposals, and accumulated depreciation are correctly recorded.
Doing this can help identify potential issues prior to balance sheet reconciliation, giving teams a headstart on identifying discrepancies. Reviewing your risk assessment process can save you a ton of effort come time to reconcile. At its core, balance sheet reconciliation involves reconciling the accounts listed on the balance sheet with their corresponding entries in the general ledger. The general ledger serves as the https://accountingcoaching.online/ master record of all financial transactions, making it the foundational source for balance sheet data. Reconciliation aims to bridge any discrepancies between the general ledger and the financial statement, ensuring that each account’s balance is accurate and consistent. Balance sheet reconciliation is the process of closing balances of all individual company accounts that are a part of the company’s balance sheet.
But it can also involve substantiating the general ledger account by analyzing line items in the account. This is to make sure you have recorded and accounted for every transaction in your business – and applied the proper classification notes payable in the process. One of the four main financial statements you have to keep track of as a business owner is your balance sheet. Your balance sheet gives you insight into where your business stands financially.
What about making sure your financial statements are accurate, or that you’ve complied with regulatory requirements? Essentially, balance sheet reconciliations are essential during the financial close as they ensure the accuracy and integrity of an organization’s financial statements. As such, technology and automation have paved the way to expedite this process, improve accuracy, require less reliance on key staff and save money while doing so. Here, we will take a look at the importance of balance sheet reconciliation, how automation tools can assist in the process, and how manual tasks could become obsolete.
With HighRadius, your business can achieve a more efficient and accurate balance sheet reconciliation process. Manual processes and outdated technology can lead to errors and delays in financial reporting, making it unsustainable for growing businesses. Legacy technology and disconnected data from multiple sources can also make it difficult to reconcile financial statements accurately. Manual data entry and reconciliation are time-consuming and prone to errors.
Typical mistakes look like human errors, bank errors, and missing transactions. To start, you’ll need the general ledger and any information source to help cross-check balances. You can reconcile a trial balance on a balance sheet by comparing the balances of the accounts on the trial balance with the corresponding balances in the ledger. The cost of discovering errors post-finalization of financial statements can be substantial. Rectifying mistakes after the fact is time-consuming and costly, potentially tarnishing the organization’s reputation and financial credibility. Once you have identified the root cause of a discrepancy, take the necessary steps to resolve it.
The best and simplest way to overcome the manual challenges of balance sheet reconciliation is to remove the need for manual labour! You can do this with the aid of financial automation tools that reconcile accounts for you automatically. The bottom line (no pun intended) is that you need to know where you stand. Reconcile a business credit card account with transaction receipts, and create an expense report for documentation. This template can be used for travel, entertaining clients, or other authorized business expenses.
One of the most significant challenges that companies face is disparate and disconnected data. Financial data is often stored in different systems and spreadsheets, making it challenging to consolidate and reconcile the information. As per a research by EY, existing repositories like asset registers, core accounting and forecast systems as well as ERP are likely to only provide around 50% of the required data points.
In contrast, the early stages of the financial close – the ‘first mile’ – which includes the capture of financial data and production of the preliminary trial balance and consolidations, have largely been neglected. And this is the case even though many of the problems that occur in the last mile are due to first mile issues. When reconciling balance sheet accounts, look at things like your business’s current and fixed assets, current and noncurrent liabilities, and owner’s equity. And, you’ll have to gather information to make comparisons and catch errors. For most businesses, it’s best practice to reconcile your balance sheet every month. Having monthly balance sheet reconciliations keeps your balance sheet accurate and free of errors.
If your company is stuck with outdated technology or multiple and separate systems, this becomes even harder to do. Let’s not forget that if many different hands are storing data on spreadsheets, then there could be missing transactions or information within the process. A balance sheet account reconciliation gives a snapshot of what money is coming in, flowing out, and what’s left in the bank. The future of balance sheet automation lies in automation, enabling organizations to navigate the financial close process with the highest standards of financial integrity. This process ensures that the financial statements reflect the actual financial position of the organization and adhere to accounting standards.
Balance sheet reconciliation can be a complex process, but no matter what your questions are, we have the answers.
From being an essential accounting practice to serving as a measure to ensure the accuracy of financial statements, such reconciliations provide crucial insights into your business. HighRadius’ AI-based account reconciliation software can help streamline the entire balance sheet reconciliation process. The software offers automated workflow management, GL account-specific reconciliation templates, AI-powered matching, and a collaborative workspace for review and approval. However, real-world issues such as entry mistakes, timing discrepancies, or technical errors often lead to variances.