What is general ledger reconciliation?

General ledger reconciliation is a critical accounting procedure that ensures that financial records are complete.

For general ledger reconciliation, accountants systematically compare account balances in the general ledger with external documentation, such as bank statements, credit card statements, and supplier invoices. It is performed to correct any discrepancies that may arise due to errors, omissions, or potential fraudulent activity.

There are several types of general ledger reconciliation:

• Bank reconciliation: the general ledger’s cash account balance is reconciled with the corresponding bank statement. It identifies and explains any differences, such as outstanding checks, deposits in transit, and bank fees.
• Customer reconciliation: it focuses on accounts receivable and compares the customer account balances in the general ledger with customer statements or invoices. The goal is to ensure all customer transactions are accurately recorded and outstanding receivables are properly identified.
• Vendor reconciliation: it compares the general ledger’s balances with vendor statements or invoices and verifies the accuracy of recorded purchases.
• Inventory reconciliation: it compares the physical inventory count with the general ledger’s inventory account balance. Any discrepancies might indicate issues with inventory management, shrinkage, or errors in recording inventory transactions.

Frequently asked questions

What are the benefits of general ledger reconciliation?

It’s important to perform general ledger reconciliation for several reasons:

• Safeguard the accuracy of financial records by identifying and rectifying any errors or inconsistencies in account balances.
• Uncover unusual activity or potential instances of fraud.
• Reinforce internal controls within an organization, demonstrating adherence to sound accounting practices and mitigating financial risks.

How frequently should general ledger reconciliations be performed?

The frequency of reconciliation depends on the specific account type and an organization’s risk tolerance.

Typically, accounts with a high volume of transactions (e.g., cash and bank accounts) are reconciled more frequently (monthly or quarterly). At the same time, accounts with lower activity may be reconciled less often (semi-annually).