General ledger reconciliation is a process that companies use to balance out their books, certifying that all of the information they contain is accurate. A general ledger is a book used by a company to track all financial transactions that occur and is divided by categories. Most companies perform a reconciliation, on their books, at the end of each month as a way of revealing any errors, and making sure they correct them.
One part of a reconciliation involves balancing out the sub-ledgers. Sub-ledgers are separate ledgers that contain information about a specific account within the general ledger. You must reconcile accounts, such as Accounts Receivable or Accounts Payable, first before continuing on to other accounts. When reconciling sub-ledgers, the balance in each sub-ledger must be equal to the balance in the same account within the general ledger.
Categories of Accounts
Many times, you will reconcile various categories of accounts individually. This includes assets, liabilities and equities. For asset accounts, this involves balancing out all asset accounts and posting any adjusting entries that are necessary, including depreciation expenses. To reconcile an asset account, you must look at the sub-ledger of each particular asset and determine if all entries made to the account are up-to-date and accurate. After that, you must verify that the asset account, within the general ledger, has the same balance.
Purpose of a Reconciliation
When running a company, it is vital that all financial information is completely correct and thorough. At the end of each period, you must create financial statements based on this information. If the information is not complete, or accurate, the financial statements will be inaccurate or misconstrued. Financial statements indicate the health of a company and are commonly used by investors, and therefore, financial statements must be free from errors.
Cameron, Melanie Anjele. Oracle general ledger guide. New York: Oracle Press/McGraw-Hill, 2009. Print.
The Strategic Treasurer A Partnership for Corporate Growth, Epub Edition.. Hoboken, New Jersey: John Wiley & Sons Inc, 2009. Print.