Reconciliation

What This Skill Does

This skill provides methodology and best practices for account reconciliation, including GL-to-subledger, bank reconciliations, and intercompany. It assists accounting teams in ensuring the accuracy of financial records. It is designed to improve the efficiency and effectiveness of reconciliation processes.

When to Use

• Reconciling GL to subledger balances.
• Performing bank reconciliations.
• Reconciling intercompany transactions.
• Identifying reconciling items.
• Categorizing reconciling items.
• Performing aging analysis.

Key Features

• Covers GL to subledger reconciliation.
• Explains bank reconciliation process.
• Details intercompany reconciliation.
• Provides guidance on reconciling item categorization.
• Offers best practices for account reconciliation.
• Includes aging analysis techniques.

Manual Installation

Manual installation## Reconciliation Types

GL to Subledger Reconciliation

Compare the general ledger control account balance to the detailed subledger balance.

Common accounts: Accounts receivable (GL control vs AR subledger aging) Accounts payable (GL control vs AP subledger aging) Fixed assets (GL control vs fixed asset register) Inventory (GL control vs inventory valuation report) Prepaid expenses (GL control vs prepaid amortization schedule) Accrued liabilities (GL control vs accrual detail schedules)

Process: Pull GL balance for the control account as of period end Pull subledger trial balance or detail report as of the same date Compare totals — they should match if posting is real-time Investigate any differences (timing of posting, manual entries not reflected, interface errors)

Common causes of differences: Manual journal entries posted to the control account but not reflected in the subledger Subledger transactions not yet interfaced to the GL Timing differences in batch posting Reclassification entries in the GL without subledger adjustment System interface errors or failed postings

Bank Reconciliation

Compare the GL cash balance to the bank statement balance.

Process: Obtain the bank statement balance as of period end Pull the GL cash account balance as of the same date Identify outstanding checks (issued but not cleared at the bank) Identify deposits in transit (recorded in GL but not yet credited by bank) Identify bank charges, interest, or adjustments not yet recorded in GL Reconcile both sides to an adjusted balance

Standard format:

Balance per bank statement: $XX,XXX Add: Deposits in transit $X,XXX Less: Outstanding checks ($X,XXX) Add/Less: Bank errors $X,XXX Adjusted bank balance: $XX,XXX

Balance per general ledger: $XX,XXX Add: Interest/credits not recorded $X,XXX Less: Bank fees not recorded ($X,XXX) Add/Less: GL errors $X,XXX Adjusted GL balance: $XX,XXX

Difference: $0.00

Intercompany Reconciliation

Reconcile balances between related entities to ensure they net to zero on consolidation.

Process: Pull intercompany receivable/payable balances for each entity pair Compare Entity A's receivable from Entity B to Entity B's payable to Entity A Identify and resolve differences Confirm all intercompany transactions have been recorded on both sides Verify elimination entries are correct for consolidation

Common causes of differences: Transactions recorded by one entity but not the other (timing) Different FX rates used by each entity Misclassification (intercompany vs third-party) Disputed amounts or unapplied payments Different period-end cut-off practices across entities

Reconciling Item Categorization

Category 1: Timing Differences

Items that exist because of normal processing timing and will clear without action:

Outstanding checks: Checks issued and recorded in GL, pending bank clearance Deposits in transit: Deposits made and recorded in GL, pending bank credit In-transit transactions: Items posted in one system but pending interface to the other Pending approvals: Transactions awaiting approval to post in one system

• Expected resolution: These items should clear within the normal processing cycle (typically 1-5 business days).
• No adjusting entry needed.

Category 2: Adjustments Required

Items that require a journal entry to correct:

Unrecorded bank charges: Bank fees, wire charges, returned item fees Unrecorded interest: Interest income or expense from bank/lender Recording errors: Wrong amount, wrong account, duplicates Missing entries: Transactions in one system with no corresponding entry in the other Classification errors: Correctly recorded but in the wrong account

Action: Prepare adjusting journal entry to correct the GL or subledger.

Category 3: Requires Investigation

Items that cannot be immediately explained:

Unidentified differences: Variances with no obvious cause Disputed items: Amounts contested between parties Aged outstanding items: Items that have not cleared within expected timeframes Recurring unexplained differences: Same type of difference appearing each period

Action: Investigate root cause, document findings, escalate if unresolved.

Aging Analysis for Outstanding Items

Track the age of reconciling items to identify stale items requiring escalation:

Aging Report Format

Trending

Track reconciling item totals over time to identify growing balances:

Compare total outstanding items to prior period Flag if total reconciling items exceed materiality threshold Flag if number of items is growing period over period Identify recurring items that appear every period (may indicate process issue)

Escalation Thresholds

Define escalation triggers based on your organization's risk tolerance:

• Note: Set thresholds based on your organization's materiality level and risk appetite.
• The examples above are illustrative.

Reconciliation Best Practices

Timeliness: Complete reconciliations within the close calendar deadline (typically T+3 to T+5 business days after period end) Completeness: Reconcile all balance sheet accounts on a defined frequency (monthly for material accounts, quarterly for immaterial) Documentation: Every reconciliation should include preparer, reviewer, date, and clear explanation of all reconciling items Segregation: The person who reconciles