Balance Sheet Account Reconciliation Tutorial.

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Balance Sheet Account Reconciliation Tutorial.
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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.

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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.

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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.

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Step 1

• Obtain the balance per the General Ledger

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Obtain the balance per the General Ledger.
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Go to Financial Link. Click on reports.
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Enter your User ID and Password.
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Click on General Ledger under Core Reports.
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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.
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For our example, we will say the General Ledger
balance equals 10,000
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Step 2

• Obtain the balance per department schedule.

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Balance per department schedule.
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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.

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For our example, the balance per schedule is
9,000.
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The balance in the General Ledger does not
match the balance of the schedule. The two
balances must be reconciled or brought into
agreement.
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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.

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Step 3

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

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To obtain detail records, Go To Financial Link.
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Click on reports.
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Enter your User ID and Password.
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Click on General Ledger transactions under Detail
Reports.
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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.
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Here is the data for this account for the month
of January.
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Tip Many people save this report as an excel
file in order to easily use the data.
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Click on transfer file
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Click Save. Then save the resulting excel file to
a location of your choosing.
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Step 4

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

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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.

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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 .
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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.
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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.
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The amount out of balance is zero. We are now
ready for the next step.
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Step 6

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

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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.
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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.
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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.
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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.

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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.

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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.

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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.

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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.

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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.

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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.

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Questions?

• Edna Mendivil
• x44927
• Marlene Trivino
• x48514