Balance Sheet Account Reconciliation Tutorial General Accounting - June 2015

1. Balance Sheet Account Reconciliation TutorialGeneral Accounting - June 2015

2. Table of Contents 1. Definition of a Reconciliation 2. Importance of a Reconciliation 3. When to Prepare a Reconciliation 4. Items Needed to Prepare a Reconciliation 5. Key Terms 6. Example of a Reconciliation 7. Reconciliation Instructions 8. Approval and Submission 9. FAQs

3. Definition of a Reconciliation In accounting, Reconciliation refers to the process of ensuring that two sets of records are in agreement. Reconciliation is used to ensure that the transactions going through an account match the actual money spent. The objective is to report the correct amount in the general ledger. This is done by making sure the balances match at the end of a particular accounting period. For example, we reconcile the balance in the general ledger account ”Cash “ to the balance shown on the bank statement.

4. Importance of a Reconciliation • Two Records - A proper reconciliation requires obtaining all of the activity in two records (department sub-ledger and the general ledger) since the last time they were reconciled and comparing them to find where any difference(s) occur. • Difference in Two Records - A difference between the two records can highlight a posting error within your department; internal entities, such as Payroll or Disbursements; external entities, such as the bank or loan company; or even something much more significant: fraud.

5. When to Prepare a Reconciliation • Timeliness- It is best practice to reconcile an account monthly, following month-end close. • If the account has been reconciled monthly, then only the activity in the last month must be reconciled. • If the account has not been reconciled monthly, you will need to reconcile back to the last month that it had been reconciled. If you cannot locate a reconciliation for the account, you should complete a reconciliation for the current fiscal year. • 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 and any corrective action can be taken to resolve issues. • Submission - General Accounting requires balance sheet account reconciliations be submitted on a quarterly basis.

6. Items Needed to Prepare a Reconciliation Access to: 1. FinancialLink – make sure you are set up with an access login through your department’s DSA (Departmental Security Administrator). • 2. Microsoft Excel • 3. Department’s Sub-ledgers

7. Key Terms – 1 of 3 Balance Sheet Accounts are used in the general ledger and represent the assets and liabilities of the University. Asset accounts start with 1, and liability accounts start with 2. Balance Sheet Reconciliation is a template in which data from a balance sheet account is entered from the Department Sub-ledger and the General Ledgerin order to analyze and identify any differences.

8. Key Terms – 2 of 3 {A} Department Sub-ledgerrefers to the sub-system, list, record, external statement, etc. maintained by adepartment detailing the balance in the account. Example: A key deposit account should have a sub-ledger that lists all outstanding deposits by amount, name, and date. {B}General Ledger is a record of financial transactions at UCSD used to produce financial reports, such as a balance sheet and income statement.

9. Key Terms – 3 of 3 {C} Variance is any difference(s) between items listed on a {A}Department Sub-ledger and the {B}General Ledger. {D} Reconciling Items are any items from the {A}Department Sub-ledger and {B} General Ledger that do not match. These items need to be researched to ensure they are legitimate and will be matched in a future month. Any errors need to be corrected.

10. Example of a Reconciliation

11. Reconciliation Instructions • A proper reconciliation is comprised of four parts: • {A} Dept Sub-ledger Account Balance • {B} General Ledger Balance • {C} Variance • {D} Reconciling Items • Items on the {A} Dept Sub-ledger are matched against the items on the {B} General Ledger. • The {C} Variance should be zero. • Any remaining items that are not matched are classified as {D} Reconciling Items.

12. Reconciliation Instructions – Step 1 Take items from your dept sub-ledger and enter them into the section of the reconciliation sheet called {A}DeptSubledger Account Balance.

13. Reconciliation Instructions – Step 2 Next, get the account balance per the General Ledger in FinancialLink. Recommended: do not limit your search to only one fund. 1. Log into FinancialLink. 2. Click Reports.

14. Reconciliation Instructions – Step 2(cont’d) 3. Click the dropdown arrow next to Ledger and Detail Reports. 4. Click General Ledger.

15. Reconciliation Instructions – Step 2 (cont’d) 5. Update the accounting period to reflect the period you are reconciling. 6. Type the Account #. 7. Click Submit Form. Recommended: Check the boxes to see Db/Cr Indicators.

16. Reconciling Instructions – Step 3 Take the balance from the general ledger report and enter it into section {B} General Ledger Balance on the reconciliation sheet.

17. Reconciliation Instructions – Step 4 • Analyze section {C} Variance between the {A}Dept Sub-ledger and the {B} General Ledger. Is the variance zero? If so, you are done! • If the {C} Variance is NOT zero, you need to identify the {D} Reconciling Items. These items can be journal entries not recorded in that period in FinancialLink or timing differences that will clear in future months. After the reconciling items have been identified, Unreconciled Balance should be zero.

18. Approval & Submission– 1 of 3 • Once the reconciliation(s) are completed, the reconciliation must be verifiedand approved. • The review and approval is typically performed by a supervisor to verify that the reconciliation meets the standard as outlined. • A link to the form is included in the email you receive from the Balance Sheet Coordinator. If you are unable to locate that link, go to Blink and search for Confirmation of Balance Sheet Account. A new form is posted for each quarter. • Type directly into this document, then save and print.

19. Approval & Submission – 2 of 3 • Type the Account information - number and title. • The next portion is for the Reconciliation Preparer and Supervisor signatures. By signing the form, you agree that the reconciliations are complete and accurate. Please note that for audit purposes, the Preparer and Supervisor (Approver) need to be two different people. • The bottom of the form reminds you where to submit your reconciliation(s).

20. Approval & Submission– 3of 3 • Make sure to submit a copy of the reconciliation for each account named on the form as supporting documentation. • You can submit one confirmation form for multiple account reconciliations provided the account numbers are all listed on the form in the proper location and all reconciliation supporting documentation is attached. Please send all submissions to: BALSHEETACCTS@UCSD.EDU

21. FAQ’s – 1 of 3 Question:Who should do the reconciliation? Answer: 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. Question:The worksheet I receive each quarter listing the accounts and owners is incorrect or incomplete. Answer: Please email BALSHEETACCTS@UCSD.EDU with the necessary corrections. Please correct the worksheet and send it back, with corrections highlighted in yellow.

22. FAQ’s – 2 of 3 Question:I receive the worksheet each quarter asking for a reconciliation, but the account has a zero balance. Answer: A certification should still be sent to General Accounting stating the account has the correct balance, in this case, zero. If the account has activity within the quarter even with a zero balance, a reconciliation still needs to be completed. Question:The account I am being asked to reconcile will not be used again, and has a zero balance. Answer: Please email BALSHEETACCTS@UCSD.EDUand we will inactivate the account. Once the account has been inactivated, you will no longer be asked to provide a reconciliation.

23. FAQ’s – 3 of 3 Question: Why does each account have a Preparer and Owner field? Answer: 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. Question: Our account is much more difficult than the example in this tutorial. We could use additional help. Answer: General Accounting offers training on Balance Sheet Account Reconciliation upon request. Please email BALSHEETACCTS@UCSD.EDU

24. Questions? Please email BALSHEETACCTS@UCSD.EDU