Do You Know How To Reconcile Your General Ledger?
General Ledger is where all the transactions and expenses in the business are recorded. Good accounting practices require that the general ledger to be reconcile or be checked for accuracy on a regular basis. In addition, since the general ledger is the source of information for four financial statements (balance sheet, income statement, cash flow statement, and shareholder equity report), reconciliation may refer to the general ledger checks. General ledger reconciliation may be useful in the preparation of annual audits or can also be used to ensure that business owners obtain an accurate picture of their business financial statements.
- Search and organize relevant documents.
In addition to the general ledger itself, you need all documents related to each transaction in the general ledger including invoices, receipts, account statements, and other records related to any transactions or expenses. Basically, anything that is used as a general ledger data source for an accounting period should be placed and put together for easy access.
- Check your account balance.
Start by selecting one of the accounts in general ledger to be reconciled first. This can be one of many business accounts, from accounts receivable to inventory up to interest costs. It does not matter which account you’ll start with, because in the end, you’ll need to do it on every existing account.When you have selected an account, make sure the beginning balance for the period recorded in the ledger corresponds to the final balance for the same account from the last period. This ensures that any errors detected lie in the same period and not in the previous period.For example, if you choose a cash account, you must ensure that the final cash balance from this period is equal to the beginning cash balance of the period. Any discrepancies will impact the inaccurate cash balance report so that the actual amount of cash is unknown.
- Match every general ledger entry with the underlying transaction.
Take a look at any transactions that affect your account. If proper accounting procedures are followed, each ledger’s general entry should refer to the invoice number or receipt that can make the document easy to find. When you have found the document, make sure that the transaction is recorded only once in each account, for the correct amount, and in the correct account. Adjust the wrong amount and recalculate the total account balance. For example, in a cash account, you should check the transactions from which cash is received or where the company makes payments.
- Make sure the adjustments and reversals are done correctly.
Adjustments typically used to comply with accrual and reversal accounting standards by altering entries made in previous periods may cause the account to be unbalanced if not implemented correctly.
- With adjustments, it is important to check whether recorded correctly, for example, accounting adjustments for billed but not retrieved services are actually required in the situation.
- For reversals, also called reversal entries, the important thing to look at is a planned reversal for a certain period is actually done at the right time. In other words, make sure that whatever is planned for reversed has been reversed properly.
- Investigate unusual transactions.
For the experienced, some unusual transactions will be seen. These transactions generally make adjustments to balances that are not normally done. For example, a decline to an income account that is not normally done during a typical accounting period.
- Verify the account balance
After any adjustments for incorrect transactions, adjustments, or inversions are reported, go back to check and make sure the number of transactions matches the final account balance. If the calculated balance does not match the actual balance in the account, there may be an error in the calculation
- Repeat for another account.
Use the same process again on each account in general ledger. When finished, you will have a complete general ledger