What is the GL Reconciliation Process?
Why Companies Need to Reconcile their GL Balances?
General ledger balances are summary totals that:
- Represent all the transactions generated by the running of a company
- Are carried through into the company balance sheet
Based on the numbers in the balance sheet:
- Bankers lend money to the company
- Company directors steer the business
- Investors decide to invest in the company
It does not take much imagination to figure out that GL balances need to be CORRECT.
Doing regular general ledger reconciliations is a way to prove that the GL balances are a true reflection of the values they represent.
GL Recon Audit Process
The general Ledger (GL) reconciliation process is an audit procedure, carried out on a regular basis; either monthly after the financial close of a business or yearly prior to the arrival of the company auditors. It is a test of truth that verifies the balances in the GL against actual documents that together make up the balance.
To reconcile an account, a balance from the GL, say for Insurance, is matched against a list of the source insurance transactions for that period. The account is reconciled when the sum of these transactions, including any residual balance, match the GL balance.
Attachment of Source Documents
Often, copies of the source documents (like invoices) are included to verify the integrity of the listed source transactions. The digitization of this part of the process is where GreenLine shines. Source documents are uploaded against the line items that relate to them.
In the past, source documents were photocopied, filed and then boxed for transport to head-office. This presented a barrier to proper verification of accounts, because auditors had to first locate a relevant box, then rummage through paper piles in order to find that document(s) they were interested in.
Once uploaded into GreenLine a source document:
- cannot be altered
- reflects the name of the preparer who uploaded it
- reflects the date and time of the upload
- is always available for review
GL Recon Outcomes
Once the GL Recon process is complete and the financial period is closed, the outcome provides a:
- Verified view of a company's financial position
- Reduced financial risk
- Check for fraud and theft
- Reassurance that the figures recorded in company accounts are accurate
- Overview of company expenditure