General ledger reconciliation: What it is and how to do it
General ledger reconciliation is a cornerstone of good business financial health. Mastering this essential practice will keep your business running smoothly. Think of it as a regular check-up for your business's financial well-being.
What is general ledger reconciliation?
In simple terms, general ledger reconciliation is the process of making sure your accounting records match up with reality. It's like balancing your checkbook but for your entire business. You're comparing what your books say about your financials — like cash, accounts receivable, accounts payable — against external documents like bank statements, credit card statements, and loan statements.
Why does it matter so much?
Keeping up on general ledger reconciliation is key to understanding the health of your business and preventing headaches down the road. Here’s why you need to do it:
It helps catch errors early before they snowball into bigger problems.
It prevents fraud by spotting suspicious transactions quickly.
It gives you accurate financial statements you can trust.
It makes tax time way less stressful (and potentially less expensive).
It helps you make better business decisions based on real numbers.
Breaking down different types of reconciliation
Different accounts need different approaches. Here's how to tackle the most common:
Bank accounts
Start here — it's usually the most straightforward. Compare your bank statement with your general ledger entries. Take note of:
Deposits in transit (money you've recorded but hasn't hit your account yet).
Outstanding checks (those you've written but haven't cleared).
Bank fees that might not be recorded.
Electronic transfers you might have missed.
Credit card accounts
Match your credit card statements against your books, paying special attention to:
Timing differences between purchase dates and posting dates.
Pending returns or credits.
Annual fees or interest charges.
Accounts receivable
Compare your AR aging report with customer accounts and payments:
Check that customer payments are properly applied.
Look for unapplied credits or discounts.
Verify that written-off amounts are accurate.
Common mistakes to avoid
Even seasoned business owners can fall into these traps:
Reconciling too infrequently — monthly is the minimum, but weekly is better.
Forcing balances to match without finding the real discrepancy.
Forgetting to record small transactions like bank fees or card processing charges.
Not keeping proper documentation of reconciliation processes.
Assuming last month's reconciliation was correct without double-checking.
When to get help
There's no shame in admitting you need professional help with reconciliation. Here are signs it's time to bring in a pro:
You're consistently finding large unexplained discrepancies.
Your books haven't been reconciled for several months (or longer).
You're spending so much time on reconciliation that other aspects of your business are suffering.
Your business is growing and transactions are becoming more complex.
You're preparing for a loan application or potential sale of your business.
Moving forward
Regular general ledger reconciliation might feel like a hassle, but it's one of those business habits that pays off in spades. If you're feeling overwhelmed, remember that you don't have to go it alone. Professional small business accounting services can give you peace of mind and more time to focus on growing your business.
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