importance of monthly balance sheet reconciliation 6

A Complete Guide to the Balance Sheet Reconciliation Process

At the same time, this information is used by insurers and bankers for creditworthiness evaluation. Every business leader recognizes the value of a month end close process that is error-free and easy to perform. If you want to get started using automation to better manage month end reconciliation and financial close, request a free demo with a data automation tool to learn more.

• Regular balance sheet reconciliations help finance professionals and CFOs identify errors, discrepancies, and fraudulent activity.
• This consistency ensures thoroughness and accuracy across all account reconciliations.
• Bank charges are service charges and fees deducted for the bank’s processing of the business’ checking account activity.
• Reconciling your balance sheet lets you verify that all of your entries are recorded and classified correctly.

Reconcile all accounts

This reconciliation is done to ensure that the financial position of the company is being represented accurately. After you make adjustments, consider comparing your records to your balance sheet a second (or even a third) time to ensure the mistakes were fixed and that your balance sheet is accurate. In addition to making sure your documentation and balance sheet information line up, you want to make sure your ending balances match your general ledger. If your ledger and balance sheet totals don’t match up, track down the inconsistency using your records.

Timing differences between records

Combing through massive amounts of data to find discrepancies is undoubtedly a large task to take on. Additionally, teams may do so and find no errors at all, which is desired, but leaves a bad taste that all the time spent doing so was in vain. Account reconciliation is needed to prepare tax documents and adhere to importance of monthly balance sheet reconciliation regulations. Without having the right financial data, your business may be prone to legal ramifications and penalties.

Internal control

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Processing

You may need to contact the other party in affected transactions to obtain copies of the documentation. Finally, if possible, have a second person review and approve all reconciliations. Make journal entries to indicate where you have adjusted the balances, documenting all relevant details.

This is done by comparing debit card receipts or check copies with a persons bank statements. Cash and/or checks that have been received and recorded by an entity, but which have not yet been recorded in the records of the bank where the entity deposits the funds. We focus on reconciling balance sheet accounts because they reflect a company’s assets, liabilities, and equity at a specific point in time. Accurate reconciliation ensures the integrity of the financial position, identifies errors, and helps prevent fraud, providing a clear financial snapshot for stakeholders.

During my 20-year tenure at a mid-sized company, we followed a structured approach to balance sheet reconciliations. The key principle was completing reconciliations before the month-end close, not after. This proactive approach ensured that discrepancies were identified and addressed promptly, keeping financial statements accurate and reliable. Balance sheet reconciliation differs from account reconciliation in scope, but are often used interchangeably. Account reconciliation focuses on comparing a specific general ledger account balance, such as a cash account, to its respective documents. Balance sheet reconciliation, however, looks at the overall financial position by considering all accounts listed on the balance sheet.

If it has not yet cleared the bank by the end of the month, it does not appear on the month-end bank statement, and so is a reconciling item in the month-end bank reconciliation. When your company receives the bank statement, you should print a report listing all of the checks written and deposits made during the month. A company will probably have accounting software that can provide reports.If you’re reconciling your personal bank account, you should review your check register and your deposit slips. A company should print the cash reports, and also review the check register and deposit slips.

Ensures Accuracy in Financial Statements

• The rationale for moving the reconciliation process inside the financial close is compelling.
• This helps to get an overview of the close reconciliation process and enables in ensuring that your financial records are accurate.
• If you’re unsure about the reconciliation process or don’t have the time, consider working with a professional experienced in bookkeeping and reconciliations to ensure that everything is done accurately.
• This is vital for making informed decisions about your business’s future, whether you’re evaluating profitability, seeking investment, or applying for a loan.

But suppose you have a large business with multiple bank accounts, credit cards, and loans. One of the most important aspects of any reconciliation is ensuring that all transactions are appropriately accounted for. This means reviewing each transaction to ensure it is correctly recorded in the accounting system. If there are any discrepancies, they should be investigated and corrected immediately. Then, the system executes the necessary transaction matching to remove manual labor from the equation. This gives finance more time to focus on high value tasks and providing greater insights to the business.

If this sounds familiar, consider switching to a centralized close management tool. With a central close checklist, everyone gains access to a collaborative workspace where they can see real-time financial data and updates. Features like comment sections enhance asynchronous communication among team members, and you can store all supporting documents and reconciliation notes in one place. You might wonder if getting balance sheet reconciliations perfect is worth the effort. Nailing this process helps provide real advantages that strengthen your whole business operation, going far beyond just checking off a task.

Investors are more likely to trust a company that demonstrates a commitment to financial discipline. Reconciling balance sheet accounts monthly signifies your dedication to accurate reporting and responsible financial management. This can enhance investor confidence, attract potential investors, and potentially lead to improved access to funding.

Technology solutions can facilitate collaboration between different departments involved in the reconciliation process. For instance, cloud-based platforms allow for real-time updates and communication between team members. This can help reduce the risk of errors and ensure that the reconciliation process is completed efficiently. In the example given above, we see a discrepancy of $45,000 between the subledger balance and the GL balance.