What is GL Reconciliation? Advanced Tips for CFOs

Being in business means keeping your business on the books. General ledger reconciliation, or GL reconciliation, is necessary to know that your financial statements are accurately reflecting your financial status and health. In some cases, an expert bookkeeper can perform this critical routine, and in others, a trained CFO or controller must step in. Luckily, with automation software, GL reconciliation has become more accessible, faster and more accurate. 

Let’s take a look at everything there is to know and how automation software can help you manage your GL reconciliations. 

Coming Up

1. General Ledger Reconciliation - Defined

2. What is General Ledger Reconciliation?

3. What are the Types of General Ledger Reconciliation?

4. What are General Ledger Reconciliation Use Cases?

5. What is the GL Reconciliation Process?

6. What are the Benefits of General Ledger Reconciliation?

7. What are Examples of General Ledger Reconciliation

8. What are the Common Errors in General Ledger Reconciliation?

9. How does General Ledger Reconciliation Software Work?

10. How to Streamline General Ledger Reconciliations with Automation?

11. The Bottom Line

General Ledger Reconciliation - Defined

The general ledger stores all financial transactions of a company. Commonly and informally referred to as the “books,” the general ledger is your company’s main financial record. As such, it’s undoubtedly necessary that transactions are input and stored correctly. 

In the general ledger, every transaction is recorded twice, once as a debit and as a credit. General ledger reconciliation is then defined as ensuring that each transaction is recorded correctly and placed in the appropriate account as a credit and debit. 

GL reconciliation comes along with some pain points. The accuracy of data is the most crucial aspect because the GL represents the business’ financial status and is often published to shareholders and released into the market. Incorrect entries can lead to detrimental decision-making, embarrassment and fines. The process, when performed manually, is time-consuming and prone to manual errors. However, with an automation solution like SolveXia, you can process huge amounts of data and match records within minutes. Not only do automated GL reconciliations save time, but they also make it easier to compare historical data to figure out discrepancies. 

What is General Ledger Reconciliation?

General ledger reconciliation is the process of comparison between accounts and data. Those tasked with the process will have to verify the books against other financial documents like statements, reports, and accounts. Many companies use subsidiary ledgers, which are most commonly the accounts receivable and accounts payable ledgers. The general ledger reconciliation will require that subsidiary account balances match up properly with the general ledger. 

To optimize efficiency and standardization, it’s best to have a general ledger reconciliation process documented. Since it’s a repeated process at each financial close, it should be completed promptly and at the same time each month to maintain consistency. The reconciliation policy serves as a form of internal control. 

What are the Types of General Ledger Reconciliation?

There are various types of general ledger reconciliations, so it’s helpful to break them down and know which should be prioritized. The three most popular types of general ledger reconciliation are:

1. Customer Reconciliation 

Every time you make a sale, a customer gets an invoice for what they owe. Customer reconciliations review the invoices with outstanding accounts receivable balance in the general ledger. The goal is to be paid on what you are owed. 

2. Vendor Reconciliations

Similarly, when you work with vendors, you get invoiced on what you owe to your vendors. This shows up in the accounts payable balance that’s recorded on the general ledger. It’s vital for businesses to make payments on time to vendors to maintain positive working relationships. 

3. Bank Reconciliations

Last but not least, bank reconciliations compare the information in the general ledger to its bank statements. Bank statements may include a mortgage statement, credit card statement, or loan statement, for example. The goal is to ensure that the general ledger and bank statements are in accordance with one another. 

What are General Ledger Reconciliation Use Cases?

To get a better sense of what general ledger reconciliation entails, let’s look at some examples: 

Bank Reconciliation

Bank reconciliation compares a company’s internal records with its bank statements to ensure that the transactions and ending balances match. If there are discrepancies, they must be investigated to determine the reasoning, and ultimately, corrected. 

Intercompany Reconciliation 

If there exists more than one entity within an organization, intercompany reconciliation should take place. Through the process, the organization can ensure that the transactions between entities are properly and accurately recorded. 

What is the GL Reconciliation Process?

As stated, it’s best practice for every organization to have its general ledger reconciliation policy outlined. However, it should follow some standard guidelines. The GL reconciliation process tends to look something like this:

• Understand policy: First and foremost, whoever is conducting the GL reconciliation process will have to understand the company’s policies. From the accounting principles used to how to depreciate equipment, for example, it’ll be essential to know to perform the reconciliation properly. 
  

• Gather information: Compile all necessary documentation. This could include a bank statement, cancelled checks, subsidiary ledgers, the general ledger, etc. 
  

• Review data: At the heart of the GL reconciliation process is ensuring that the documentation is accurately reflecting the transactions that have occurred. If you see anything that’s unusual or suspicious, it’s essential to perform the investigation as soon as possible to ensure there’s no fraud or errors. If you can pinpoint what is missing or erroneous, you’ll be able to take corrective action. This could mean that you’ll make a journal entry to fix the error. 
  

• Cross-check: Once you’ve investigated any anomalies, you’ll cross-check documents to make sure that everything is recorded and updated as it should be. 
  

• Document work: Since reconciliation is a regulated aspect of the business, you’ll need to make sure that you’ve detailed what you’ve done, including any corrective action that’s been taken. Not only does this include making notes of any records that were updated, but it also means that you should have a clear roadmap for the next time reconciliation is performed. 
  

• Get approval: GL reconciliations may be performed by controllers, bookkeepers or someone else who has been delegated the task within the company. Once it’s complete, there’s typically a review process to double-check that everything is kosher. The reconciliation process is only complete once it’s received a stamp of approval. It’s also essential to do promptly because companies can’t release financial statements until GL reconciliation has been finished. 
  

What are the Benefits of General Ledger Reconciliation?

GL reconciliation is a necessary process that is mandatory for businesses. It’s needed to meet filing deadlines, ensure accuracy of books, and fulfill month-end financial close procedures. GL reconciliation provides your business with:

1. Accuracy: GL reconciliation is a basis to check all financial statements and make sure they are correct. 
   

2. Prevention: An easy way to spot anomalies or fraud/errors while they are still in a timeframe to be managed and resolved. ‍
   

3. Adjustments: An overview of spending which will allow for better decision-making and allocation of funds to improve your business’ overall financial health. 
   

4. Internal Control: Performing GL reconciliation helps maintain a grasp on how the company is functioning and spot any opportunities for process improvement. 
   

5. Decision-making: With accurate financial statements and information at your fingertips, you can make informed business decisions with confidence. 
   

6. Audit readiness: GL reconciliation at a regular frequency aids in ensuring the accuracy of financial statements. With supporting documentation, the audit process is direct and based on reliable, up-to-date records. 
   

7. Compliance: Depending on the industry in which you operate, it is likely that there are financial standards and accounting processes to uphold. General ledger reconciliation ensures compliance and adds transparency into your business’ financial health. 
   

8. Cost control: Knowing where your money is being spent and what’s driving revenue is a healthy way to control costs efficiently. 

What are Examples of General Ledger Reconciliation?

When conducting general ledger reconciliation, there are several examples of general ledger accounts that you’ll want to review. These include:

• Asset accounts: Including inventory, investments, land, equipment, and accounts receivable. 

• Liability accounts: Liability accounts span note payable, customer deposits, accounts payable, and accrued expenses payable. 

• Equity Accounts: Equity accounts are those that typically have investor-related activity, like: retained earnings, common stock, and treasury stock. 

• Expenses Accounts: Expense accounts reflect money that is owed, such as: rent, advertising, and payroll, to name a few. 

• Revenue Accounts: On the other hand, revenue accounts, or income accounts, are those that generate cash flowing into the business, including: sales and service fees. 

What are the Common Errors in General Ledger Reconciliation?

General ledger reconciliation is necessary, but when performed manually, it can be both time-consuming and error-prone. Hence why so many companies leverage automation software to assist. 

When conducting GL reconciliations by hand, common errors that arise include:

• Incorrect data: Data entry has no room for errors, but when done manually, it’s possible you may input the wrong data or duplicate data. Automated data capture prevents such issues. 

• Missing information: Compiling the necessary documentation to even begin the GL reconciliation process is a feat in itself. This is especially true if records are being stored across desktops, spreadsheets and systems. All supporting documentation should be neatly and easily accessible to those who need it in a centralized and secure location. 

• Irregularity: It’s best to conduct reconciliations at a set frequency with consistency. Whether its daily, weekly, or monthly, everyone involved should be aware of deadlines and take action on a timely basis. Otherwise, you’re left with a buildup of records to go through, as well as a potential buildup of errors to rectify. 

Software solutions like SolveXia make it seamless to conduct frequent, standardized, and accurate GL reconciliations without any risk of missing information. Since SolveXia integrates with your existing tech stack, you can rest assured knowing that your data can be ingested in any format and neatly organized in a central, secure, and accessible location. 

How Does General Ledger Reconciliation Software Work?

As you know, the GL reconciliation process can take up a lot of valuable time. Since data is stored across multiple sources and must be compared side-by-side, manual reconciliation is less than optimal. Without software, it means that your team is spending time to both locate source documentation and then go through it line by line. Luckily, GL reconciliation uses the power of technology and automation to make the process efficient. 

GL reconciliation software imports necessary data from all systems, including ERP and General Ledger systems, credit card statements, banks and all other sources of value. It automatically compares the data. It’ll auto-certify when data matches between sources. If data is inconsistent, it will identify and alert your team. This way, your financial team can spend their time on high-value tasks and only be involved in the process when needed for investigative purposes. From data importation, comparison and storage, the software system can do it all. 

The top of the line GL reconciliation software provides your business with: 

• Automated reviews and workflows 
• Safe storage of data and information 
• Audit trails 
• Storage of all applicable policies for reference 
• Reconciliation templates and easy ways to standardize the process 
  

Streamline Reconciliation with Automation

Automation solutions make GL reconciliation easy, timely and error-free. The GL reconciliation is streamlined and controlled when you introduce automation solutions like SolveXia. SolveXia’s process-centric application will handle your data processing and matching. It can reduce the time it takes to reconcile accounts by as much as 98%! 

The system stores the reconciliation as a process that is easily managed and deployed. As the reconciliation occurs, your team will be notified when exceptions need to be reviewed, corrected and approved. The visualization tools also make investigations even more transparent so that they can be completed more quickly. Once completed, the process is stored and can be executed automatically as directed. This takes care of standardizing the GL reconciliation process. 

Every reconciliation runs through the system and is reflected by a dashboard that can be read by any user with access at any time. With a centralized data storage system, SolveXia’s automation solution will pull data from all integrated systems. That means no more disparate or missing data!  The powerful cloud-based software can reconcile millions of transactions in just seconds and then connect all reconciled data between systems. 

While GL reconciliations are necessary for the financial close process, they also play a massive role in helping make financial decisions. With SolveXia’s reports and visual dashboards, you can track and compare your company’s spending and income. This is more than just information for information’s sake. It offers actionable insights. Dashboards can be customized and presented to executives for a clear and timely overview of how the business is performing in real-time.

The Bottom Line 

The GL reconciliation process can be streamlined and performed with accuracy with the help of automation solutions. All businesses must have accurate books. Your financial status impacts your decisions. With business moving quickly, it’s beneficial to ensure that your finances are in order so that you can make the right decisions. 

With automation solutions like SolveXia, you can perform accurate and timely reconciliation processes in no time. From data integrations to secure data storage and easy-to-read reports, there’s nothing you’ll be lacking when it comes to GL reconciliation.

To see how SolveXia can help your company perform its GL reconciliations, request a demo!