General Ledger Reconciliation Explained

General ledger reconciliation is an essential part of the accounting process, and certain types of tools and techniques can streamline the process, saving you time and ensuring accuracy. Keep reading to learn about common challenges in general ledger reconciliation and how optimizing the right type of technology can help.

What Is a General Ledger?

A general ledger, also referred to as a GL, is a type of record-keeping system that includes all of a company’s financial data and transactions, including revenue and expenses. A general ledger generates statements and reports and is key to understanding a company’s financial health.

What Is General Ledger Reconciliation?

General ledger reconciliation is the process of ensuring that a company’s financial data is balanced and accurate. This typically involves comparing documents such as bank statements and invoices.

While GL reconciliation isn’t legally mandated on its own, it’s a must for any business in order to help maintain financial accuracy, detect fraud, and ensure compliance. Public companies and regulated industries, in particular, must comply with strict financial reporting standards and requirements.

Techniques & Tools for Streamlining General Ledger Reconciliation

In order to make the most of general ledger reconciliation, consider implementing the following techniques and tools:

• Accounting software that includes reconciliation capabilities: The right solution can import, tag, and categorize all transactions while simultaneously allowing for rules-based reconciliation. You can also receive immediate alerts for discrepancies or potential fraud, which enables you to handle these issues in a timely manner instead of having to wait until they are found hours later through manual reconciliation.
• An automated cash and credit card reconciliation solution that includes transaction matching: Ensure the solution can look at each transaction and match the charge in the point of sale (POS) system or property management system (PMS).
• Reconcile regularly: This is especially important when it comes to chargebacks, which refer to a payment that the consumer receives after successfully disputing a credit card charge. Plus, consistent reconciliation allows you to catch any errors and flag instances of potential fraud in a timely manner.
• Ensuring the right personnel are handling reconciliation: Make sure that each team member’s tasks align with their skill set.
• Staying up to date on training and compliance standards: Participate in monthly or quarterly training sessions so that you and your team are aware of any issues and compliance or regulation changes.
• Keeping information and data secure: Limit financial and accounting access to authorized personnel only.

Tips for Improving Reconciliation Efficiency

In addition to reconciling at least once a week, consider implementing the following tips to improve GL reconciliation efficiency:

• Maintain detailed, accurate records. This is where the right software solution comes in. An automated reconciliation platform can automatically match transactions, flag discrepancies and issues, and generate reports.
• Standardize your processes and procedures: Create comprehensive standard operating procedures (SOPs) that detail all aspects of your reconciliation process, including what to do in the event of discrepancies and potential fraud.
• Review and update procedures on a regular basis. Your SOPs are only effective if they are up to date. Periodically review your reconciliation process in order to detect potential areas of improvement.
• Ensure staff is properly trained. It’s imperative that your employees know how to use the tools, techniques, and appropriate software applications.

Common Challenges and How an Automated Solution Can Help

Now, let’s take a closer look at some of the most common challenges in general ledger reconciliation, and how an automated solution can help overcome them.

Challenge: Identifying discrepancies.
Solution: An automated reconciliation solution can import data from bank statements, accounting systems, credit card statements, and the like, which means that all of the information you need is included in the process from the beginning. The right solution will also have the ability to match transactions based on certain data, such as amount, date, or payee.

Challenge: Handling a large amount of data.
Solution: Most automated reconciliation solutions are designed to handle large amounts of information, with some even processing data in batches, which speeds up the process.

Challenge: Overcoming system integration issues.
Solution: An automated reconciliation solution acts as a central repository for all your data, pulling in the necessary details from bank statements, credit card processors, and similar sources and ensuring it’s standardized.

Challenge: Ensuring data security.
Solution: An automated solution reduces the amount of people who touch or have access to your data. Certain solutions also contain encryption or additional security capabilities to further enhance data security.

Challenge: Inability to post the GL due to delay in receiving relevant credit card processing transactions.
Solution: An automated system has real-time data processing, which means you will receive transactions when they are available.

FAQs

What are the different types of reconciliation?

Cash reconciliation is the process of comparing financial records that were recorded in the POS to the physical amount of actual cash on hand at the end of a specific period (typically the end of the day or a shift). Credit card reconciliation is the process of comparing a company’s credit card transactions that are collected and processed against the sales posted in the POS system to accurately record revenue to the bank account.

In addition to the information from your POS and PMS, reconciliation involves data from outside entities, including banks, vendors, and customers.

How often should my team perform general ledger reconciliation?

Reconcile at least once a week in order to catch any discrepancies and flag instances of potential fraud.

Can you explain how to reconcile a general ledger account?

The first step is to make sure all of your financial data has been entered into the general ledger. Obtain the ending balance that you would like to reconcile, and then gather all records you’ll use to compare the balance. This may include bank statements, inventory records, and vendor statements. Compare the transactions to ensure they are recorded correctly and that the amounts match. Investigate any discrepancies and note these adjustments in the general ledger. Prepare a reconciliation report, which includes the starting balance, any adjustments that you made, and the ending balance.

What is the difference between a balance sheet and a general ledger?

A balance sheet is a financial statement that offers a high-level overview of your company’s finances during a specific time period (monthly, quarterly, etc.). It typically details a company’s liabilities, assets, and net worth. The general ledger, on the other hand, provides a record of all financial transactions over time. The balance sheet will provide a quick assessment of the financial health of a company whereas the GL is a compilation of multiple financial documents that provide detailed information.

Looking To Enhance Your General Ledger Reconciliation Process?

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