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Title: Balance Sheet Account Reconciliation Tutorial.


1
Balance Sheet Account Reconciliation Tutorial.
2
Reconciliation
  • Definition The process of analyzing two related
    records and, if differences exist between them,
    finding the cause and bringing the two records
    into agreement. Balance sheets accounts
    reconciliations are one of the oldest and most
    important accounting processes that helps ensure
    the accuracy, completeness of transactions and
    proper segregation of duties. A critical element
    of the reconciliation is to resolve differences
    differences should be identified, investigated,
    explained and a corrective action must be taken.

3
Types of Balance Sheet Accounts
  • Asset Accounts
  • Account number starts with a 1 (i.e. 1XXXXX)
  • Represents the amount owed to the University by
    an outside party.
  • Liability Accounts
  • Account number starts with a 2 (i.e. 2XXXXX)
  • Represents the amount owed by the University to
    an outside party.
  • Clearing Accounts
  • Is a special type of liability account (2190xx).
  • General Ledger includes bank activity.
  • Amount in account should zero each month,
    differences should be from items in transit.

4
Reconciling an Asset or Liability Account
  • Step 1 - Obtain the balance per the General
    Ledger
  • Step 2 - Obtain the balance per department
    schedule.
  • If the balance per the General Ledger and the
    department schedule do not equal, go to step 3.
  • Step 3 - Obtain detail activity per general
    ledger since account was last reconciled.
  • Step 4 - Obtain detail activity per department
    schedules since account was last reconciled.
  • Step 5 - Compare the two records and find the
    items which cause the difference between them.
    These are called reconciling items.
  • Step 6 - Research the adjusting items and take
    the necessary action (s).
  • Step 7 - Have the reconciliation approved.

5
Step 1
  • Obtain the balance per the General Ledger

6
Obtain the balance per the General Ledger.
7
Go to Financial Link. Click on reports.
8
Enter your User ID and Password.
9
Click on General Ledger under Core Reports.
10
Select the period and account number. Note Do
NOT choose a fund number unless several funds
share this account, this is not usual. Keeping
the fund field blank will allow you to spot any
unauthorized activity in the account.
11
For our example, we will say the General Ledger
balance equals 10,000
12
Step 2
  • Obtain the balance per department schedule.

13
Balance per department schedule.
14
Balance Per Schedule
  • The term schedule refers to a set of records
    maintained by the department which details what
    the balance should be in an account.
  • It can be from a sub-system. For Example, a
    department may have their own accounting system
    to record transactions.
  • It can be a separate worksheet saved as a
    computer file. For Example, a department may
    save a listing of all receivables in a excel
    file.
  • It can be a handwritten journal or log. For
    Example, a department may record key deposits in
    a journal for each set of keys they distribute.

15
For our example, the balance per schedule is
9,000.
16
The balance in the General Ledger does not
match the balance of the schedule. The two
balances must be reconciled or brought into
agreement.
17
Reconciling Accounts
  • We must obtain all the activity in these two
    records since they were last reconciled and
    compare them to find where the difference occurs.
  • If the account was reconciled last month, then
    only the activity in the last month must be
    reconciled.
  • If the account has not been reconciled recently,
    the reconciliation process will be longer and
    harder to complete.
  • Reconciliations are much easier to do, and
    differences are easier to resolve if they are
    done monthly. Doing reconciliations monthly will
    save time and effort.
  • Investigate identified differences and take
    corrective action to resolve differences.

18
Step 3
  • Obtain detail activity per general ledger since
    account was last reconciled.

19
To obtain detail records, Go To Financial Link.
20
Click on reports.
21
Enter your User ID and Password.
22
Click on General Ledger transactions under Detail
Reports.
23
Enter the dates since the account was last
reconciled, as well as the account number. In
our example, the month of January has not been
completed.
24
Here is the data for this account for the month
of January.
25
Tip Many people save this report as an excel
file in order to easily use the data.
26
Click on transfer file
27
Click Save. Then save the resulting excel file to
a location of your choosing.
28
Step 4
  • Obtain detail activity per department schedules
    since account was last reconciled.
  • Schedules will vary by department.

29
Step 5
  • Compare the two records and find the items which
    cause the difference between them. These are
    called reconciling items.
  • Comments on any items that do not match or do not
    have supporting documentation as backup.
  • Obtain reconciliation approval by management.
  • Must include date of item for aging purposes.

30
It will likely be necessary to make changes in
format of the schedules to make comparison
easier. The downloaded example General Ledger has
been altered so it can be easily compared to the
example department schedule .
31
The two schedules are compared to each other.
The items on the General Ledger are matched
against the items on the schedule. The remaining
items are reconciling items. They are needed to
make the schedules agree or reconcile. There are
three reconciling items.
32
In our example, the General Ledger detail did not
have two items (2,000 and 500) that was on the
departments schedule, so those two items are
needed to adjust the general ledger. The
general ledger had one item (1,500) that was not
on the schedule, therefore the schedule should be
adjusted for that item.
33
The amount out of balance is zero. We are now
ready for the next step.
34
Step 6
  • Research the adjusting items and take the
    necessary action (s).

35
Item 1 - 2,000 This probably a timing
difference. The department has recorded
receiving a payment on January 31st, but it is
not in the January General Ledger. It will
probably be in the February ledger, once the
cashier has recorded it. No further action is
needed at his time. However, this item must
clear next month.
36
Item 2 - 500 The department has determined that
receivable 2222 is uncollectible per University
guidelines. They have updated the departmental
schedule, but have not yet updated the General
Ledger. A journal entry will be necessary to
credit the account receivable, and debit the
departments revenue account.
37
Item 3 - 1,500 The department did not record
payment of invoice 5858 in their system. The
department should update their schedules to show
that invoice 5858 has been paid. A journal to
the General Ledger is not necessary since the
General Ledger is correct.
38
Reconciling a Clearing Account
  • Clearing Accounts are a special type of Liability
    Account. The account is not meant to hold items
    for several months, items are constantly
    clearing out of the account.
  • All differences at the end of the month should be
    timing differences.
  • Generally, any item will clear or can be
    matched against an offsetting debit or credit
    within a week.
  • Any item which does not clear within a week or
    two, indicates a problem which requires
    resolution.

39
Step 7
  • Have the reconciliation approved.
  • Once the reconciliation has been completed, it
    should be reviewed/approved. Typically the
    supervisor of the person reconciling the account
    will be the person reviewing the reconciliation.
  • The same person cannot both perform the
    reconciliation and approve it.

40
Approver Checklist of Asset Accounts
  • Asset accounts start with a 1 (1XXXXX).
  • Does the account have a credit balance (asset
    accounts should have a debit balance)?
  • Is the University owed additional money not
    listed in the asset account?
  • Does the reconciliation list items that will not
    be received by the University?
  • Answering yes to any of the above questions
    indicates a journal entry might be needed.

41
Approver Checklist of Liability Accounts
  • Liability accounts start with a 2 (2XXXXX).
  • Does the account have a debit balance (Liability
    accounts should have a credit balance)?
  • Does the University owe additional money not
    listed in the liability account?
  • Does the reconciliation show items no longer owed
    by the University?
  • Answering yes to any of the above questions
    indicates a journal entry might be needed.

42
Frequently Asked Questions
  • Q. How often must reconciliations be sent to the
    accounting department?
  • A. Reconciliations must be sent to the
    accounting department each quarter.
  • September, December, March, May, and June
    Preliminary.
  • Q. So my department must do four reconciliations
    each year?
  • A. A reconciliation should be done each month.
    The accounting department will request and track
    the quarterly reconciliations. The results will
    be given to the Vice Chancellors.
    Reconciliations should be performed on a timely
    basis, usually this is monthly. Reconciliations
    that are not performed timely are harder to
    reconcile, and many outstanding items can be
    easily solved if done monthly, as opposed to
    correcting them months later.

43
Frequently Asked Questions (cont.)
  • Q. Who should do the reconciliation?
  • A. This varies from department to department.
    The person responsible for updating the General
    Ledger (and/or keeping the department schedule up
    to date) should NOT be the same person performing
    the reconciliation.
  • Q. The worksheet I receive each quarter listing
    the accounts and owners is incorrect or
    incomplete.
  • A. Please email BALSHEETACCTS_at_UCSD.EDU with the
    needed corrections. Please correct the worksheet
    and send it back, with corrections highlighted in
    yellow.
  • Q. I receive the worksheet each quarter asking
    for a reconciliation, but the account has a zero
    balance and there is nothing to reconcile.
  • A. A certification should still be sent to the
    accounting office stating the account has the
    correct balance, in this case, zero.

44
Frequently Asked Questions (cont.)
  • Q. The account I am being asked to reconcile
    will not be used again, and has a zero balance.
  • A. Please email BALSHEETACCTS_at_UCSD.EDU and we
    will inactivate the account. Once the account
    has been inactivated, you will no longer be asked
    to provide reconciliation.
  • Q. Why does each account have a Preparer, and
    Owner field?
  • A. Each reconciliation must be signed off by
    two different people. The person who does the
    reconciliation and the person that approves the
    reconciliation. One person cannot both prepare
    and approve the reconciliation.
  • Q. Our account is much more difficult than the
    example in this tutorial. We could use
    additional help.
  • A. General Accounting offers training on
    Balance Sheet Account Reconciliation upon
    request.

45
Questions?
  • Edna Mendivil
  • x44927
  • Marlene Trivino
  • x48514
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