Account Reconciliations are performed for many reasons, including:
• To ensure transactions are reported on the general ledger on a timely and accurate basis.
• 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.
Format of Account Reconciliations:
There are various tools and processes available in the market place to perform account reconciliations. However, the underlying criteria that these tools work on are the same in most cases.
A simple account reconciliation format, for example for fixed assets account is given below:
F/A General Ledger Balance (1) 92
Independent Source Supporting Balance:
Fixed Assets Register 100
Total Supported Balance (2) 100
Difference between GL and Supported Balance (1-2) (8)
Difference explained by:
Assets Purchased not accounted (15)
Mis-posting of Depreciation 7
Total difference explained (3) (8)
Unexplained Difference (1-2-3) 0
Account reconciliation is a valuable control tool in the finance and controllership process, and if used properly and regularly – can help several companies maintain the integrity of their financial statements and ensure compliance with laws and principles.