What is Balance Sheet Reconciliation?

A balance sheet reconciliation is a process that compares the balances of two or more accounts to ensure they are accurate and in agreement.

This typically involves comparing the balance of an account in the company's general ledger to the corresponding balance on a bank statement or other external document.

So basically , your balance sheet gives you insight into where your business stands financially.

Let’s first understand which are those common balance sheet accounts and how they are further arranged in the general ledger:

Asset accounts : Cash, Accounts Receivable, Inventory, Investments, Land, and Equipment these are the examples of assets accounts.

Example of liability accounts including Notes Payable, Accounts Payable, Accrued Expenses Payable, Customer Deposits etc.

Common Stock, Retained Earnings, Treasury Stock, these are some examples of Equity Stocks.

But, you won’t get an accurate picture of your company’s finances if you don’t keep up with balance sheet reconciliation.

Why Account Reconciliations are required?

The reconciliation's purpose is to provide Controllers and other Finance personnel with reasonable assurance that the balance in the general ledger account is accurate and accounted for properly.

Additionally, balance sheet reconciliation helps to detect fraud, identify errors and discrepancies in accounting records, and ensure compliance with accounting standards and regulations.

It also helps to ensure that the company's assets and liabilities are properly accounted for, and that the financial statements accurately reflect the company's financial position.

Furthermore, it helps to ensure that the company's internal controls are working effectively. This is important for companies that are publicly traded, Account Reconciliations are performed for many reasons.

To ensure transactions are timely and accurately reported on the general ledger of the correct statutory entity (stakeholders include Company shareholders, creditors, taxing authorities, and other governmental bodies).

To identify, document, track and explain transactional differences between general ledger and sub-ledger balances and/or other independent sources.

To identify and guard against fraudulent activity and reduce losses.

In conjunction with the account reconciliation process, the expectation is to conduct root cause analysis on any operational defects highlighted and identify process improvement projects to address them.

Responsibilities of Account Owner.

The balance sheet account owner is responsible for maintaining the accuracy and integrity of the specific balance sheet account for which they are responsible.

The specific roles and responsibilities of a balance sheet account owner may vary depending on the company and the account in question, but generally include the following:

Overall, the account owner is responsible for ensuring that the balance sheet account is accurate, complete, and in compliance with accounting standards, regulations, and the company's policies and procedures, and for providing accurate and reliable information to management and other stakeholders.

Tools and Technologies used to perform the Balance Sheet Reconciliation

There are several tools and technologies that companies can use to perform balance sheet reconciliation, some of which include:

 Accounting software: Many accounting software programs have built-in features for balance sheet reconciliation. These software programs can automate many of the tasks involved in reconciliation, such as posting debits and credits, reconciling accounts to supporting documentation, and generating reports.

 Spreadsheets: Companies can also use spreadsheets, such as Microsoft Excel, to perform balance sheet reconciliation. Spreadsheets can be used to create templates for reconciling accounts, and they can also be used to create reports and charts that can help identify discrepancies and errors.

 Cloud-based solutions: There are several cloud-based solutions that companies can use to perform balance sheet reconciliation. These solutions typically include a web-based interface that allows users to access their financial data from any location, and they often offer advanced features such as real-time reporting and collaboration tools.

 Automated Reconciliation Software: This type of software is specifically designed to automate the process of balance sheet reconciliation. It typically integrates with accounting software, bank feeds, and other data sources to automatically match transactions and identify discrepancies. It also helps to automate the process of investigating and resolving discrepancies.Some of the examples are : BlackLine,Oracle Hyperion, Net Suiete.

 Robotics Process Automation (RPA): RPA is a technology that automates repetitive, rules-based tasks. RPA can be used to automate the process of balance sheet reconciliation by performing tasks such as data entry, transaction matching, and exception handling. This can significantly reduce the time and resources required to perform reconciliation.

Overall, companies have a variety of tools and technologies available to them for performing balance sheet reconciliation. The choice of tool or technology will depend on the company's specific needs and resources.