Accountant, auditor, financial close ninja.
What is General Ledger Reconciliation?
General Ledger (GL) reconciliation is an accounting process aimed at ensuring the compliance and integrity of an organisation’s books of account.
The general ledger contains a record of every financial transaction a company makes during a financial year. It contains a number of general ledger accounts, which contain records of every financial transaction conducted by a business.
General ledger accounts record transactions relating to Revenue, Costs and Balance Sheet items.
General ledger accounts are reported in two classifications, namely Balance Sheet accounts and Income Statement accounts.
- Income Statement GL accounts are reported in a logical manner to state the financial trading results of a business.
- Balance Sheet GL accounts reveal the financial health of the business at any given period close
What is a GL Reconciliation?
At an individual account level, a reconciliation is the comparison of transaction records recorded in a single GL account against the source of those transactions over a certain period.
The reconciliation process, is a check for errors, which can occur during data entry. Reconciliation also detects illegal or fraudulent adjustments.
The GL recon process is normally carried out regularly as specified by the organisation’s accounting policies. Sometimes this process is carried out monthly but some companies mandate a quarterly or annual GL reconciliation cycle.
The Reconciliation Process
Account Level Reconciliation
At account level the reconciliation process:
- Check the opening balance of a GL account to ensure that it matches transaction line item details for the preceding period. Match errors are the investigated to ascertain the reason for the mismatch.
- Review all recorded adjustments (usually dealing with accruals)
- Review of reversals
The General Ledger Reconciliation process requires that all items making up a balance at period end, must be supported by the documents which gave rise to those transactions. All documents related to individual GL transactions need to be scrutinized and attached to the reconciliation.
These documents include:
- As well as any documents containing transactions used as source for the data recorded in the general ledger for the relevant financial period
General Ledger Level
At GL level, aggregated accounts are reviewed to ensure their reflected balances match. These accounts include:
- Revenue accounts
- Expense accounts
- Equity accounts
Investigation of unusual entries, for example where adjustments are made to accounts that do not usually have movement over the normal accounting period.