reconciliation

$27

Process:

• Pull GL balance for the control account as of period end

• Pull subledger trial balance or detail report as of the same date

• Compare totals — they should match if posting is real-time

• Investigate any differences (timing of posting, manual entries not reflected, interface errors)

Common causes of differences:

• Manual journal entries posted to the control account but not reflected in the subledger

• Subledger transactions not yet interfaced to the GL

• Timing differences in batch posting

• Reclassification entries in the GL without subledger adjustment

• System interface errors or failed postings

Bank Reconciliation

Compare the GL cash balance to the bank statement balance.

Process:

• Obtain the bank statement balance as of period end

• Pull the GL cash account balance as of the same date

• Identify outstanding checks (issued but not cleared at the bank)

• Identify deposits in transit (recorded in GL but not yet credited by bank)

• Identify bank charges, interest, or adjustments not yet recorded in GL

• Reconcile both sides to an adjusted balance

Standard format:

Balance per bank statement:         $XX,XXX

Add: Deposits in transit            $X,XXX

Less: Outstanding checks           ($X,XXX)

Add/Less: Bank errors               $X,XXX

Adjusted bank balance:              $XX,XXX

Balance per general ledger:         $XX,XXX

Add: Interest/credits not recorded  $X,XXX

Less: Bank fees not recorded       ($X,XXX)

Add/Less: GL errors                 $X,XXX

Adjusted GL balance:                $XX,XXX

Difference:                         $0.00

Intercompany Reconciliation

Reconcile balances between related entities to ensure they net to zero on consolidation.

Process:

• Pull intercompany receivable/payable balances for each entity pair

• Compare Entity A's receivable from Entity B to Entity B's payable to Entity A

• Identify and resolve differences

• Confirm all intercompany transactions have been recorded on both sides

• Verify elimination entries are correct for consolidation

Common causes of differences:

• Transactions recorded by one entity but not the other (timing)

• Different FX rates used by each entity

• Misclassification (intercompany vs third-party)

• Disputed amounts or unapplied payments

• Different period-end cut-off practices across entities

Reconciling Item Categorization

Category 1: Timing Differences

Items that exist because of normal processing timing and will clear without action:

• Outstanding checks: Checks issued and recorded in GL, pending bank clearance

• Deposits in transit: Deposits made and recorded in GL, pending bank credit

• In-transit transactions: Items posted in one system but pending interface to the other

• Pending approvals: Transactions awaiting approval to post in one system

Expected resolution: These items should clear within the normal processing cycle (typically 1-5 business days). No adjusting entry needed.

Category 2: Adjustments Required

Items that require a journal entry to correct:

• Unrecorded bank charges: Bank fees, wire charges, returned item fees

• Unrecorded interest: Interest income or expense from bank/lender

• Recording errors: Wrong amount, wrong account, duplicates

• Missing entries: Transactions in one system with no corresponding entry in the other

• Classification errors: Correctly recorded but in the wrong account

Action: Prepare adjusting journal entry to correct the GL or subledger.

Category 3: Requires Investigation

Items that cannot be immediately explained:

• Unidentified differences: Variances with no obvious cause

• Disputed items: Amounts contested between parties

• Aged outstanding items: Items that have not cleared within expected timeframes

• Recurring unexplained differences: Same type of difference appearing each period

Action: Investigate root cause, document findings, escalate if unresolved.

Aging Analysis for Outstanding Items

Track the age of reconciling items to identify stale items requiring escalation:

Age Bucket

Status

Action

0-30 days

Current

Monitor — within normal processing cycle

31-60 days

Aging

Investigate — follow up on why item has not cleared

61-90 days

Overdue

Escalate — notify supervisor, document investigation

90+ days

Stale

Escalate to management — potential write-off or adjustment needed

Aging Report Format

Item #

Description

Amount

Date Originated

Age (Days)

Category

Status

Owner

1

[Detail]

$X,XXX

[Date]

XX

[Type]

[Status]

[Name]

Trending

Track reconciling item totals over time to identify growing balances:

• Compare total outstanding items to prior period

• Flag if total reconciling items exceed materiality threshold

• Flag if number of items is growing period over period

• Identify recurring items that appear every period (may indicate process issue)

Escalation Thresholds

Define escalation triggers based on your organization's risk tolerance:

Trigger

Threshold (Example)

Escalation

Individual item amount

$10,000

Supervisor review

Individual item amount

$50,000

Controller review

Total reconciling items

$100,000

Controller review

Item age

60 days

Supervisor follow-up

Item age

90 days

Controller / management review

Unreconciled difference

Any amount

Cannot close — must resolve or document

Growing trend

3+ consecutive periods

Process improvement investigation

Note: Set thresholds based on your organization's materiality level and risk appetite. The examples above are illustrative.

Reconciliation Best Practices

• Timeliness: Complete reconciliations within the close calendar deadline (typically T+3 to T+5 business days after period end)

• Completeness: Reconcile all balance sheet accounts on a defined frequency (monthly for material accounts, quarterly for immaterial)

• Documentation: Every reconciliation should include preparer, reviewer, date, and clear explanation of all reconciling items

• Segregation: The person who reconciles should not be the same person who processes transactions in that account

• Follow-through: Track open items to resolution — do not just carry items forward indefinitely

• Root cause analysis: For recurring reconciling items, investigate and fix the underlying process issue

• Standardization: Use consistent templates and procedures across all accounts

• Retention: Maintain reconciliations and supporting detail per your organization's document retention policy