Reconciliation

1---2name: reconciliation3description: Reconcile accounts by comparing GL balances to subledgers, bank statements, or third-party data. Use when performing bank reconciliations, GL-to-subledger recs, intercompany reconciliations, or identifying and categorizing reconciling items.4argument-hint: "<account> [period]"5---6 7# Reconciliation8 9**Important**: This skill assists with reconciliation workflows but does not provide financial advice. All reconciliations should be reviewed by qualified financial professionals before sign-off.10 11Methodology and best practices for account reconciliation, including GL-to-subledger, bank reconciliations, and intercompany. Covers reconciling item categorization, aging analysis, and escalation.12 13## Reconciliation Types14 15### GL to Subledger Reconciliation16 17Compare the general ledger control account balance to the detailed subledger balance.18 19**Common accounts:**20- Accounts receivable (GL control vs AR subledger aging)21- Accounts payable (GL control vs AP subledger aging)22- Fixed assets (GL control vs fixed asset register)23- Inventory (GL control vs inventory valuation report)24- Prepaid expenses (GL control vs prepaid amortization schedule)25- Accrued liabilities (GL control vs accrual detail schedules)26 27**Process:**281. Pull GL balance for the control account as of period end292. Pull subledger trial balance or detail report as of the same date303. Compare totals — they should match if posting is real-time314. Investigate any differences (timing of posting, manual entries not reflected, interface errors)32 33**Common causes of differences:**34- Manual journal entries posted to the control account but not reflected in the subledger35- Subledger transactions not yet interfaced to the GL36- Timing differences in batch posting37- Reclassification entries in the GL without subledger adjustment38- System interface errors or failed postings39 40### Bank Reconciliation41 42Compare the GL cash balance to the bank statement balance.43 44**Process:**451. Obtain the bank statement balance as of period end462. Pull the GL cash account balance as of the same date473. Identify outstanding checks (issued but not cleared at the bank)484. Identify deposits in transit (recorded in GL but not yet credited by bank)495. Identify bank charges, interest, or adjustments not yet recorded in GL506. Reconcile both sides to an adjusted balance51 52**Standard format:**53 54```55Balance per bank statement:         $XX,XXX56Add: Deposits in transit            $X,XXX57Less: Outstanding checks           ($X,XXX)58Add/Less: Bank errors               $X,XXX59Adjusted bank balance:              $XX,XXX60 61Balance per general ledger:         $XX,XXX62Add: Interest/credits not recorded  $X,XXX63Less: Bank fees not recorded       ($X,XXX)64Add/Less: GL errors                 $X,XXX65Adjusted GL balance:                $XX,XXX66 67Difference:                         $0.0068```69 70### Intercompany Reconciliation71 72Reconcile balances between related entities to ensure they net to zero on consolidation.73 74**Process:**751. Pull intercompany receivable/payable balances for each entity pair762. Compare Entity A's receivable from Entity B to Entity B's payable to Entity A773. Identify and resolve differences784. Confirm all intercompany transactions have been recorded on both sides795. Verify elimination entries are correct for consolidation80 81**Common causes of differences:**82- Transactions recorded by one entity but not the other (timing)83- Different FX rates used by each entity84- Misclassification (intercompany vs third-party)85- Disputed amounts or unapplied payments86- Different period-end cut-off practices across entities87 88## Reconciling Item Categorization89 90### Category 1: Timing Differences91 92Items that exist because of normal processing timing and will clear without action:93 94- **Outstanding checks:** Checks issued and recorded in GL, pending bank clearance95- **Deposits in transit:** Deposits made and recorded in GL, pending bank credit96- **In-transit transactions:** Items posted in one system but pending interface to the other97- **Pending approvals:** Transactions awaiting approval to post in one system98 99**Expected resolution:** These items should clear within the normal processing cycle (typically 1-5 business days). No adjusting entry needed.100 101### Category 2: Adjustments Required102 103Items that require a journal entry to correct:104 105- **Unrecorded bank charges:** Bank fees, wire charges, returned item fees106- **Unrecorded interest:** Interest income or expense from bank/lender107- **Recording errors:** Wrong amount, wrong account, duplicates108- **Missing entries:** Transactions in one system with no corresponding entry in the other109- **Classification errors:** Correctly recorded but in the wrong account110 111**Action:** Prepare adjusting journal entry to correct the GL or subledger.112 113### Category 3: Requires Investigation114 115Items that cannot be immediately explained:116 117- **Unidentified differences:** Variances with no obvious cause118- **Disputed items:** Amounts contested between parties119- **Aged outstanding items:** Items that have not cleared within expected timeframes120- **Recurring unexplained differences:** Same type of difference appearing each period121 122**Action:** Investigate root cause, document findings, escalate if unresolved.123 124## Aging Analysis for Outstanding Items125 126Track the age of reconciling items to identify stale items requiring escalation:127 128| Age Bucket | Status | Action |129|-----------|--------|--------|130| 0-30 days | Current | Monitor — within normal processing cycle |131| 31-60 days | Aging | Investigate — follow up on why item has not cleared |132| 61-90 days | Overdue | Escalate — notify supervisor, document investigation |133| 90+ days | Stale | Escalate to management — potential write-off or adjustment needed |134 135### Aging Report Format136 137| Item # | Description | Amount | Date Originated | Age (Days) | Category | Status | Owner |138|--------|-------------|--------|-----------------|------------|----------|--------|-------|139| 1      | [Detail]    | $X,XXX | [Date]          | XX         | [Type]   | [Status] | [Name] |140 141### Trending142 143Track reconciling item totals over time to identify growing balances:144 145- Compare total outstanding items to prior period146- Flag if total reconciling items exceed materiality threshold147- Flag if number of items is growing period over period148- Identify recurring items that appear every period (may indicate process issue)149 150## Escalation Thresholds151 152Define escalation triggers based on your organization's risk tolerance:153 154| Trigger | Threshold (Example) | Escalation |155|---------|---------------------|------------|156| Individual item amount | > $10,000 | Supervisor review |157| Individual item amount | > $50,000 | Controller review |158| Total reconciling items | > $100,000 | Controller review |159| Item age | > 60 days | Supervisor follow-up |160| Item age | > 90 days | Controller / management review |161| Unreconciled difference | Any amount | Cannot close — must resolve or document |162| Growing trend | 3+ consecutive periods | Process improvement investigation |163 164*Note: Set thresholds based on your organization's materiality level and risk appetite. The examples above are illustrative.*165 166## Reconciliation Best Practices167 1681. **Timeliness:** Complete reconciliations within the close calendar deadline (typically T+3 to T+5 business days after period end)1692. **Completeness:** Reconcile all balance sheet accounts on a defined frequency (monthly for material accounts, quarterly for immaterial)1703. **Documentation:** Every reconciliation should include preparer, reviewer, date, and clear explanation of all reconciling items1714. **Segregation:** The person who reconciles should not be the same person who processes transactions in that account1725. **Follow-through:** Track open items to resolution — do not just carry items forward indefinitely1736. **Root cause analysis:** For recurring reconciling items, investigate and fix the underlying process issue1747. **Standardization:** Use consistent templates and procedures across all accounts1758. **Retention:** Maintain reconciliations and supporting detail per your organization's document retention policy