Simply defined, an Account Reconciliation is a comparison between an account balance according to the General Ledger or Trial Balance and what Authoritative Supporting Documentation (ASD) tells us the account balance should be, and a detailed explanation for any differences between the two. Account Reconciliations often determine any Adjusting Journal Entries (AJE) necessary to ensure that account balances are fairly stated. Account Reconciliations are to be performed for Balance Sheet/Statement of Financial Position accounts that represent asset or liability balances to be presented at a point in time, most commonly at month-end or fiscal year-end dates.
The most accessible example of an Account Reconciliation is a Bank Reconciliation (bank rec). The relevant components of a bank rec are the Trial Balance (TB) for a Cash account at a period-end date, General Ledger detail for the Cash account, and the bank statement to serve as ASD.
The Cash account balance per the TB is compared with the account balance per the bank statement, and the resulting difference is attributed to a combination of reconciling items, which represent differences between the two sources. The GL Accounting team is responsible for determining whether those differences should be included in the GL balance to fairly state the Cash balance based on the relevant accounting assertions to Cash (Existence, Accuracy, and Cut-off), meaning the Cash exists, the total balance is accurate, and its activity is recorded solely to the appropriate period.
Examples of reconciling items in a bank reconciliation are:
Outstanding Checks: checks written by the University to vendors, employees, contractors, debt-holders, etc. that have been taken out of the Cash balance in the GL, but aren’t yet cleared, so they haven’t been reflected in the bank statement. This represents a timing difference that requires no adjustment.
Deposits-in-Transit: Deposits brought to the University’s Treasury Accountant in cash, checks, or ACH transactions that have been reported on the GL, but not yet reflected in the bank statement. This represents a timing difference that requires no adjustment.
Bank Fees: Fees assessed by the bank and reported on the bank statement that haven’t yet been reflected on the GL, and should result in an AJE to reflect those fees on the GL.
Each account balance should be subject to a reconciliation, but only material account balances should be reconciled regularly. They should all be reconciled at year-end, but some, such as Cash, should be reconciled monthly. Accounts Receivable should be at least quarterly.