The general ledger refers to the main set of accounts, and it aggregates all the business transactions that a company has recorded. When the accountants from an accounting firm in Johor Bahru is doing the general ledger reconciliation, they will review all the accounts in it to make sure that the balances of the accounts and their related source documents match each other. Usually, the accountants will reconcile the general ledger before the auditors of the company conduct an audit on the financial statements (Also see Introduction to Audit Procedures). This is to make sure that the accounting records are in their best condition to be audited.
Below are the steps that the accountants will take when they are reconciling the general ledger at the account level:
Checking the opening balance
The accountants will match the opening balance of the account with the ending details of the last accounting period’s reconciliation (Also see What is Bank Reconciliation?). If the sums fail to match each other, then they should look into the reasons for the change in the last period. If it has been a long time since the accountants last carried out the reconciliation process, mistakes can occur in the last few accounting periods.
Checking the transactions for the current accounting period
The accountants should match the transactions that occur with those that they have reported in the accounts and make adjustments if required.
Then, the accountants need to review all the adjusting entries they have recorded in the accounts to see if the entries are appropriate. If necessary, they should make additional adjustments.
The accountants should make sure that they have reversed all the journal entries that need to be reversed in the accounting period.
Reviewing ending balance
Also, they should confirm that the ending account balance and the ending detail match each other.
Besides carrying out the general ledger reconciliation at the account level, the accountants may also assess the entire general ledger. This is for them to make sure that they have aggregated all the accounts into the company’s financial statements (Also see Why Do We Need to Generate Financial Statements?). Listed below are the steps for the process of reconciliation:
– Summarising the ending account balances of all the revenue accounts and check whether the aggregate amount and the total revenue in the company’s income statement match each other.
– Summarising the ending account balances of all the expense accounts and check whether the aggregate amount and the total expense in the company’s income statement match each other. The accountants can do so by referring to the individual expense line item in the income statement.
– Summarising all the accounts that record the balances for assets, liabilities as well as equity before confirming whether the aggregate amount and the particular line items in the company’s balance sheet (Also see Accounting – Preparation of Balance Sheet) match each other.
The general ledger reconciliation process may also refer to the investigation the accountants will do if the general ledger is unbalanced, which means that the sum of all the debits and the credits do not match each other. If this happens, the accountants need to investigate the total of debits and credits in every account to determine the account that has recorded mismatched debits and credits.