One of my least favorite things to do when I was in college was prepare bank reconciliations and account reconciliations. This was because I really didn’t understand how EASY reconciling a general ledger account really is. If you understand the basics, account reconciliation is simple.
How to Reconcile a General Ledger Account Step #1: Run a General Ledger
The first step in account reconciliation is fairly obvious. You need to start by running a general ledger. This will give you your “system total”. This is what is currently recorded as your account balance on the books.
How to Reconcile a General Ledger Account Step #2: Determine your Control Total
Your control total, simply put, is the balance that your account should be. When you reconcile a general ledger account, you should know at least how to determine what the account balance should be. For some accounts, what the general ledger account should be is fairly straight forward. For other accounts, it could be harder to determine. However, determining your control total is vital to reconcile a general ledger account.
How to Reconcile a General Ledger Account Step #3: Compare the System Total to the Control Total
The third step in account reconciliation is to compare your system total to the control total. If you are lucky, the two will match and you will have successfully reconciled a general ledger account. If you the system total and control total match, go on to step #5. If not, proceed to step #4.
How to Reconcile a General Ledger Account Step #4: Determine Where Variances Lay
If your system total and control total don’t match, you have to figure out why. This is oftentimes the hardest part when you reconcile a general ledger account. To determine what differences exist, you will need to look at a detailed ledger and see what was recorded in the system and match it against transactions on your control total documentation. Look for simple errors such as transposing a number or leaving a digit off first. Then, determine if there are unrecorded transactions or transactions that were recorded twice. Another cause of account reconciliation variances is making the entry backwards.
How to Reconcile a General Ledger Account Step #5: Prepare Your Account Reconciliation
Once you have determined your system total, determined your control total, compared the two balances, and determined where your variances lay it is time to prepare your account reconciliation. This is a professional display that will show your managers and auditors how you went through the process. The general ledger account reconciliation should plainly disclose the system and control totals and explain all variances in detail. For documentation, include a copy of the general ledger page showing the system balance, the documents showing the control total, and any documentation of variances determined.
As you can see, it is fairly simple to reconcile a general ledger account. It may not be quick, but if you take your time and work through the steps I just provided you, you will find that account reconciliation will get easier and easier each time you do it.
