Balance Sheet Account Balance Sheet Account Reconciliation Tutorial.Reconciliation Tutorial.

ReconciliationReconciliation

Definition: The process of analyzing two related records and, Definition: The process of analyzing two related records and, if differences exist between them, finding the cause and if differences exist between them, finding the cause and

bringing the two records into agreement. bringing the two records into agreement. Balance sheets accounts reconciliations are one Balance sheets accounts reconciliations are one of the oldest and most important accounting of the oldest and most important accounting processes that helps ensure the accuracy, processes that helps ensure the accuracy, completeness of transactions and proper completeness of transactions and proper segregation of duties. A critical element of the segregation of duties. A critical element of the reconciliation is to resolve differences; reconciliation is to resolve differences; differences should be identified, investigated, differences should be identified, investigated, explained and a corrective action must be taken.explained and a corrective action must be taken.

Types of Balance Sheet AccountsTypes of Balance Sheet Accounts Asset Accounts – Asset Accounts –

Account number starts with a 1 (i.e. 1XXXXX)Account number starts with a 1 (i.e. 1XXXXX) Represents the amount owed to the University by an Represents the amount owed to the University by an

outside party.outside party. Liability Accounts – Liability Accounts –

Account number starts with a 2 (i.e. 2XXXXX)Account number starts with a 2 (i.e. 2XXXXX) Represents the amount owed by the University to an Represents the amount owed by the University to an

outside party.outside party. Clearing Accounts – Clearing Accounts –

Is a special type of liability account (2190xx).Is a special type of liability account (2190xx). General Ledger includes bank activity.General Ledger includes bank activity. Amount in account should zero each month, Amount in account should zero each month,

differences should be from items in transit.differences should be from items in transit.

Reconciling an Asset or Liability Reconciling an Asset or Liability AccountAccount

Step 1 - Obtain the balance per the General LedgerStep 1 - Obtain the balance per the General Ledger Step 2 - Obtain the balance per department schedule.Step 2 - Obtain the balance per department schedule.If the balance per the General Ledger and the department If the balance per the General Ledger and the department

schedule do not equal, go to step 3.schedule do not equal, go to step 3. Step 3 - Obtain detail activity per general ledger since Step 3 - Obtain detail activity per general ledger since

account was last reconciled.account was last reconciled. Step 4 - Obtain detail activity per department schedules Step 4 - Obtain detail activity per department schedules

since account was last reconciled.since account was last reconciled. Step 5 - Compare the two records and find the items Step 5 - Compare the two records and find the items

which cause the difference between them. These are which cause the difference between them. These are called reconciling items.called reconciling items.

Step 6 - Research the adjusting items and take the Step 6 - Research the adjusting items and take the necessary action (s).necessary action (s).

Step 7 - Have the reconciliation approved.Step 7 - Have the reconciliation approved.

Step 1Step 1

Obtain the balance per the General Obtain the balance per the General LedgerLedger

Obtain the balance per the

General Ledger.

Go to Financial Link.

Click on reports.

Enter your UserID and Password.

Click on GeneralLedger under

Core Reports.

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.

For our example,we will say the General Ledger balance equals

$10,000

Step 2 Step 2

Obtain the balance per department Obtain the balance per department schedule.schedule.

Balance per department

schedule.

Balance Per ScheduleBalance Per Schedule

The term “schedule” refers to a set of records The term “schedule” refers to a set of records maintained by the department which details what maintained by the department which details what the balance should be in an account. the balance should be in an account. It can be from a sub-system. For Example, a It can be from a sub-system. For Example, a

department may have their own accounting system to department may have their own accounting system to record transactions.record transactions.

It can be a separate worksheet saved as a computer It can be a separate worksheet saved as a computer file. For Example, a department may save a listing of file. For Example, a department may save a listing of all receivables in a excel file.all receivables in a excel file.

It can be a handwritten journal or log. For Example, It can be a handwritten journal or log. For Example, a department may record key deposits in a journal for a department may record key deposits in a journal for each set of keys they distribute.each set of keys they distribute.

For our example, the balance per

schedule is $9,000.

The balance in the General

Ledger does not match the

balance of the schedule. The two balances

must be reconciled or brought into

agreement.

Reconciling AccountsReconciling 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.

Step 3Step 3

Obtain detail activity per general ledger Obtain detail activity per general ledger since account was last reconciled.since account was last reconciled.

To obtain detail records,

Go To Financial Link.

Click on reports.

Enter your UserID and Password.

Click on GeneralLedger

transactionsunder Detail

Reports.

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.

Here is the data for this

account for the month of January.

Tip: Many people save this report as an excel file in order to easily use the data.

Click on transfer file

Click Save.Then save the resulting excel

file to a location of your

choosing.

Step 4Step 4

Obtain detail activity per department Obtain detail activity per department schedules since account was last schedules since account was last reconciled. reconciled. Schedules will vary by department.Schedules will vary by department.

Step 5Step 5

Compare the two records and find the Compare the two records and find the items which cause the difference between items which cause the difference between them. These are called reconciling items.them. These are called reconciling items.

Comments on any items that do not match Comments on any items that do not match or do not have supporting documentation or do not have supporting documentation as backup.as backup.

Obtain reconciliation approval by Obtain reconciliation approval by management.management.

Must include date of item for aging Must include date of item for aging purposes.purposes.

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 .

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.

In our example, the General Ledger detail did not have

two items ($2,000 and

$500) that was on the

department’s 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.

The amount out of balance is zero. We are now ready for the next step.

Step 6Step 6

Research the adjusting items and take the Research the adjusting items and take the necessary action (s).necessary action (s).

Item 1 - $2,000This 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.

Item 2 - $500The 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 department’s

revenue account.

Item 3 - $1,500The 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.

Reconciling a Clearing AccountReconciling a Clearing Account

Clearing Accounts are a special type of Liability Clearing Accounts are a special type of Liability Account. The account is not meant to hold items Account. The account is not meant to hold items for several months, items are constantly for several months, items are constantly “clearing” out of the account.“clearing” out of the account. All differences at the end of the month should be All differences at the end of the month should be

timing differences. timing differences. Generally, any item will “clear” or can be matched Generally, any item will “clear” or can be matched

against an offsetting debit or credit within a week.against an offsetting debit or credit within a week. Any item which does not clear within a week or two, Any item which does not clear within a week or two,

indicates a problem which requires resolution.indicates a problem which requires resolution.

Step 7Step 7

Have the reconciliation approved.Have the reconciliation approved. Once the reconciliation has been completed, Once the reconciliation has been completed,

it should be reviewed/approved. Typically the it should be reviewed/approved. Typically the supervisor of the person reconciling the supervisor of the person reconciling the account will be the person reviewing the account will be the person reviewing the reconciliation.reconciliation.

The same person cannot both perform the The same person cannot both perform the reconciliation and approve it.reconciliation and approve it.

Approver Checklist of Asset Approver Checklist of Asset AccountsAccounts

Asset accounts start with a 1 (1XXXXX).Asset accounts start with a 1 (1XXXXX). Does the account have a credit balance (asset Does the account have a credit balance (asset

accounts should have a debit balance)?accounts should have a debit balance)? Is the University owed additional money not listed in Is the University owed additional money not listed in

the asset account?the asset account? Does the reconciliation list items that will not be Does the reconciliation list items that will not be

received by the University?received by the University?

Answering yes to any of the above questions indicates a Answering yes to any of the above questions indicates a journal entry might be needed. journal entry might be needed.

Approver Checklist of Liability Approver Checklist of Liability AccountsAccounts

Liability accounts start with a 2 (2XXXXX).Liability accounts start with a 2 (2XXXXX). Does the account have a debit balance (Liability Does the account have a debit balance (Liability

accounts should have a credit balance)?accounts should have a credit balance)? Does the University owe additional money not listed in Does the University owe additional money not listed in

the liability account?the liability account? Does the reconciliation show items no longer owed by Does the reconciliation show items no longer owed by

the University?the University?

Answering yes to any of the above questions indicates a Answering yes to any of the above questions indicates a journal entry might be needed. journal entry might be needed.

Frequently Asked QuestionsFrequently Asked Questions Q. How often must reconciliations be sent to the accounting Q. How often must reconciliations be sent to the accounting

department?department?A. Reconciliations must be sent to the accounting department each A. Reconciliations must be sent to the accounting department each quarter. quarter.

September, December, March, May, and June Preliminary.September, December, March, May, and June Preliminary. Q. So my department must do four reconciliations each year? Q. So my department must do four reconciliations each year?

A. A reconciliation should be done each month. The accounting A. A reconciliation should be done each month. The accounting department will request and track the quarterly reconciliations. The department will request and track the quarterly reconciliations. The results will be given to the Vice Chancellors. Reconciliations should results will be given to the Vice Chancellors. Reconciliations should be performed on a timely basis, usually this is monthly. be performed on a timely basis, usually this is monthly. Reconciliations that are not performed timely are harder to Reconciliations that are not performed timely are harder to reconcile, and many outstanding items can be easily solved if done reconcile, and many outstanding items can be easily solved if done monthly, as opposed to correcting them months later.monthly, as opposed to correcting them months later.

Frequently Asked Questions (cont.)Frequently Asked Questions (cont.) Q. Who should do the reconciliation?Q. Who should do the reconciliation?

A. This varies from department to department. The A. This varies from department to department. The person responsible for updating the General Ledger person responsible for updating the General Ledger (and/or keeping the department schedule up to date) (and/or keeping the department schedule up to date) should NOT be the same person performing the should NOT be the same person performing the reconciliation.reconciliation.

Q. The worksheet I receive each quarter listing the Q. The worksheet I receive each quarter listing the accounts and owners is incorrect or incomplete. accounts and owners is incorrect or incomplete. A. Please email A. Please email BALSHEETACCTS@UCSD.EDU with with the needed corrections. Please correct the worksheet the needed corrections. Please correct the worksheet and send it back, with corrections highlighted in yellow. and send it back, with corrections highlighted in yellow.

Q. I receive the worksheet each quarter asking for a Q. I receive the worksheet each quarter asking for a reconciliation, but the account has a zero balance and reconciliation, but the account has a zero balance and there is nothing to reconcile.there is nothing to reconcile.A. A certification should still be sent to the accounting A. A certification should still be sent to the accounting office stating the account has the correct balance, in this office stating the account has the correct balance, in this case, zero. case, zero.

Frequently Asked Questions (cont.)Frequently Asked Questions (cont.)

Q. The account I am being asked to reconcile will not be used Q. The account I am being asked to reconcile will not be used again, and has a zero balance.again, and has a zero balance.A. Please email A. Please email BALSHEETACCTS@UCSD.EDU and we will and we will inactivate the account. Once the account has been inactivated, you inactivate the account. Once the account has been inactivated, you will no longer be asked to provide reconciliation. will no longer be asked to provide reconciliation.

Q. Why does each account have a Preparer, and Owner field?Q. Why does each account have a Preparer, and Owner field?A. Each reconciliation must be signed off by two different people. A. Each reconciliation must be signed off by two different people. The person who does the reconciliation; and the person that The person who does the reconciliation; and the person that approves the reconciliation. One person cannot both prepare and approves the reconciliation. One person cannot both prepare and approve the reconciliation.approve the reconciliation.

Q. Our account is much more difficult than the example in this Q. Our account is much more difficult than the example in this tutorial. We could use additional help. tutorial. We could use additional help. A. General Accounting offers training on Balance Sheet Account A. General Accounting offers training on Balance Sheet Account Reconciliation upon request. Reconciliation upon request.

Questions?Questions? Edna MendivilEdna Mendivil

x44927x44927 Marlene TrivinoMarlene Trivino

x48514x48514