What is general ledger reconciliation? A clear overview of the process and how to do it

When you’re making decisions about your business, you need rock-solid numbers.

If your records are off or out of date, you could end up overestimating how profitable you are—or worse, spending money you don’t actually have.

General ledger reconciliation is a way of checking that the figures in your books are correct and up-to-date before you publish financial statements or set your budget.

While some businesses still do this manually, many now use automation to streamline the process and reduce errors.

Let’s dive in and discover general ledger reconciliation and why it’s so important.

Here’s what we’ll cover:

What is a general ledger?

A general ledger (GL) is a central place where companies record their financial activities chronologically, with details of every business transaction.

Traditional ledgers were physical books, but nowadays, many companies use software instead.

Inside the GL, you’ll find all of your financial activity categorized into different accounts, which can also have subledgers.

Here’s a quick breakdown of the main account types:

Assets

These represent the resources owned by your business. They may be tangible or intangible, including cash, inventory, investments, equipment, and land.

Liabilities

These are your company’s financial debts and obligations.

For example, loans, accounts payable, accrued expenses payable, and money owed to creditors.

Equity

Equity is the difference between assets and liabilities.

It represents what the owners have contributed and can claim from your business.

It may include invested capital, retained earnings, preference shares, and treasury stocks.

Income

Money coming into your business, such as sales, revenue from services, or other streams.

Expenses

Money going out, or the costs of running your business—such as wages, rent, utilities, and marketing expenses.

How are general ledgers used?

Accountants use a general journal to create entries after each transaction and then post these to the general ledger.

The GL contains the data required for the company’s financial reports, such as balance sheets and income statements.

Beyond reporting, the GL helps you monitor performance over time and spot trends that could influence decisions about budgeting, strategic planning, and compliance.

What is general ledger reconciliation?

GL reconciliation is the process of checking that the information recorded in the general ledger is accurate.

This process involves comparing the account balance with the individual transactions by looking at the supporting documentation, such as bank statements, invoices, and receipts. 

If you spot a mismatch, you dig into the source documents, figure out what went wrong, and make a correction.

Most companies do this check at the end of each month, quarter, or year.

It’s a key part of making sure your published financial information is valid, and it also helps you catch and correct any errors or fraudulent activity early on.

Benefits of general ledger reconciliation

Identifying discrepancies

By cross-checking balances with their underlying documents, you can spot mistakes such as missing transactions or double entries and correct them before they become big problems.

This also helps detect potential fraud.

Optimizing processes

Reconciliation highlights redundancies or weaknesses in how you handle finances.

You can then fine-tune aspects of financial management, like cash flow management, financial reporting, and internal controls.

Improving decision-making

When you’re confident in your numbers, you’re in a better position to make smart financial decisions.

General ledger reconciliation ensures you have reliable data to support accurate budgeting, forecasting, and strategic planning.

Ensuring compliance

Proper reconciliation keeps you aligned with accounting standards and regulations, which helps avoid legal penalties and reputational damage.

It’s especially crucial before finalizing any financial statements.

Building confidence

When your financial data is accurate, you earn trust from investors, lenders, and business partners.

Transparent records also strengthen relationships with suppliers and customers.

Preparing for audit

If you reconcile the general ledger regularly, your financial records will always be well-organized and ready for auditing.

Accurate records simplify and accelerate the audit process, reducing time and cost.

What are the common types of general ledger reconciliations?

Different businesses rely on different types of GL reconciliations.

Here are some of the most popular ones:

Components of a general ledger 

If you’re new to general ledgers and the reconciliation process, it can feel overwhelming. Here’s a breakdown of some of the elements you can expect to find within your GL:

• Account names: each business account you use will have a specific title, such as sales or accounts receivable.
• Account numbers: you’ll also assign a unique number to each account name to help with identification. These numbers are usually four digits with different sequences for different account types (such as assets or liabilities).
• Transaction details: there should be a brief description of each transaction, including the date and references to the original journal entry.
• Debits and credits: each transaction is listed as a debit (money going out) or credit (money coming in).
• Account balances: you’ll keep a running balance for each account in the GL, representing the total transactions related to that account. These balances are updated with every transaction, and the ending balance is calculated at the end of each accounting period.
• Posting references: when you transfer an entry from the general journal to the general ledger, you include a reference to easily locate the original entry when needed.

How transactions are recorded in a general ledger

In a double-entry accounting system, every financial transaction affects two accounts: one is debited, the other credited.

This keeps the books balanced because every debit is offset by an equal credit.

Think of it as a T-shaped entry with columns for debits and credits.

For example, if you purchase new equipment, you’d credit the “Cash” account (money going out) and debit the “Equipment” asset account (asset increasing).

Typically, transactions start in the journal, then get grouped by category (asset, expense, etc.) and posted to the GL at regular intervals (monthly, quarterly, or annually).

How to reconcile a general ledger: Step-by-step guide

Although you may use different types of GL reconciliations depending on your business needs, you need to follow a common set of steps.

Let us walk you through the reconciliation of the general ledger.

1. Gather financial documents

Collect all the supporting documentation necessary to cross-check the GL.

Take each general ledger account and identify the relevant items, such as bank statements, receipts, invoices, and other evidence.

You’ll also need to know the ending balance of the general ledger account.

2. Compare accounts

Then, check each account in the general ledger against the relevant documents.

Cross-check the balances with any sub-ledgers that have already been reconciled against individual transactions.

3. Identify errors

If you find problems such as double entries, missed transactions, or timing discrepancies, look closely at individual transactions to identify how each error occurred.

This may involve asking customers or vendors for their records.

4. Adjust journal entries

Instead of editing incorrect entries, make a new adjusting journal entry in the GL to amend the retained earnings for the accounting period. 

In addition to correcting mistakes or omissions, adjusting journal entries records any unrecognized income or expenses for the period. 

5. Document the reconciliation process

Keep a record of general ledger reconciliation procedures, including the steps you took, the discrepancies you found, and what you did to fix them.

This is useful when performing audits or reviews and for internal control purposes.

General ledger reconciliation example

We already mentioned some GL reconciliation types, but there are a few more examples you need to know.

Bank reconciliation

There’s often a difference between your ending balance and the bank statement’s ending balance due to things like deposits in transit, outstanding checks, and bank service fees. 

That’s why it’s important to compare the two and figure out what’s causing the discrepancy.

You can use bank reconciliation software to reduce the workload and see real-time updates.

Credit card reconciliation

This involves checking your credit card statement against the transactions recorded in the general ledger.

You will need to do one reconciliation for corporate expenses and another for customer payments.

By doing so, you detect unusual transactions and record sales and income correctly.

Vendor reconciliation

Another common example of general ledger account reconciliation is vendor reconciliation.

This verifies that your records match the invoices sent to and paid by your vendors, helping you resolve any outstanding payments or credits. 

You can also check that the goods or services were actually received at the agreed prices and rectify any incorrect amounts or missing invoices.

Accounts receivable reconciliation

In this process, you will compare the total amount of the outstanding bills that your customers owe with the actual payments received in the general ledger.

Accounts receivable reconciliation allows you to spot any mismatches, investigate discrepancies, and take prompt follow-up actions.

Accounts payable (AP) reconciliation

This involves comparing GL records against invoices from suppliers and checking that the amounts you owe are accurate.

Look for discrepancies like overpayments, missed discounts, and fraudulent charges—and avoid penalties for late payment. 

Accounts payable software like Sage Intacct reduces hours of manual data entry, accurately handles a large volume of invoices, and improves cash flow control, making AP ledger reconciliation simple.

Intercompany reconciliation 

Intercompany transactions take place between subsidiaries of the same parent organization.

This might include purchases of goods, transfers of human resources, and royalties. 

It’s a little more complicated since it requires balancing multiple ledgers, with each entity checking the transactions against their records.

Fixed assets reconciliation

This verifies that the balances of fixed asset accounts in the GL tally with the actual value of the fixed assets you own. It should factor in depreciation and any sales or acquisitions.

A fixed assets management software could easily help you simplify and streamline this process.

Common mistakes in general ledger reconciliation

GL reconciliation can be challenging, especially if you don’t use standardized processes or train accounting staff on the best practices.

Here are some common mistakes that can arise:

Frequent discrepancies

Typical problems include duplicate entries, errors in data entry, and unrecorded transactions.

Someone might accidentally post a debit instead of a credit or transfer information to the wrong GL account. 

If you’re finding frequent discrepancies during reconciliation, it could be that your general ledger processes aren’t standardized.

Complex transactions

When your business scales you’ll need to record more transactions.

As a result, your financial activities can become more complex.

For example, a global business has to handle transactions in multiple currencies, while intercompany accounting and expense amortization can also be complicated. 

There is also the evolving nature of accounting regulations that adds extra complexity.

Manual reconciliation

Although several companies have moved to general ledger reconciliation software, many still perform manual reconciliation.

But this method brings its own challenges—it’s time-consuming, prone to errors, and strains your accounting team.

8 best practices for effective general ledger reconciliation

Now you know what’s involved in general ledger reconciliation and what the associated challenges are. Here are some top tips for getting the most out of general ledger reconciliation.

1. Regular reconciliation

You need to conduct GL reconciliation on a regular basis—at least annually, but preferably monthly, or quarterly.

That way, you can identify errors and inefficiencies before they accumulate and cause serious problems. 
It’s also important to be consistent with your reconciliation methods.

Automate reconciliation

Automating the general ledger reconciliation process reduces the manual workload for accountants, giving them more time to spend on strategic tasks that adds value, such as investigating discrepancies. 

With automated accounting software, you get:

• Greater accuracy
• Streamlined processes
• Improved productivity and efficiency
• Seamless integrations with other business systems

Internal controls

By implementing robust internal controls, you’ll be able to prevent errors and fraud during the reconciliation process and ensure compliance with standards and regulations. 

Internal controls can include restricted access to sensitive data and stronger authorization and approval processes.

Segregation of duties

Segregation of duties means dividing responsibilities between different team members involved in GL reconciliation. In addition to improving individual accountability, this guards against duplication of journal entries or overlapping tasks.

Continuous training

No matter how skilled your teams are, ongoing training is essential.

Things can change rapidly in the world of accounting, whether it’s updated regulations, adjustments to your own internal processes and standards, or an adoption of new software.

Regular procedure reviews

One of the benefits of GL reconciliation is that it identifies areas for improvement in your processes.

Conducting regular reviews and updates for your procedures not only ensures financial accuracy, but also allows your team to adapt to any changes in the wider business’ strategies and structures.

Documentation and record-keeping

For every reconciliation you carry out, it’s essential to keep detailed records and documentation for every investigation, adjustment, and outcome.

Not only is this valuable for compliance purposes and audit readiness, but it will also highlight ways to improve your future procedures.

What is general ledger software?

General ledger accounting software digitizes your financial activities, eliminating hours of physical paperwork and manual data entry.

CFOs and financial leaders also look for cloud financial management solutions that are capable of centralizing financial data and automating and streamlining reconciliation processes.

Today’s AI-powered general ledger accounting tools also offer smart accounting features that automatically detect and flag anomalies, simplify cross-checking records, as well as posting transactions in real time to both the sub-ledgers and general ledger.

Streamline your general ledger reconciliation with automated accounting software

Sage offers robust automation capabilities that handle multi-entity reconciliation with ease, making your workflow more efficient.

Comprehensive accounting software like Sage Intacct provides multi-dimensional reporting tools, global consolidation, and journal entry templates.

There’s built-in support for GAAP, ASC 606, and IFRS 15, plus integrations with over 10,000 global banks.

Sage is the ideal solution for streamlining your GL reconciliation process.

Here’s how we can help:

• Automated matching: instantly matches bank statement transactions with GL entries, saving time and reducing mistakes.
• Real-time updates: your GL is always up-to-date, thanks to direct bank feed integrations.
• Error detection and adjustment: quickly flags mismatches so you can fix them on the spot.
• Comprehensive reporting: generates detailed reports for easy review and verification of reconciled transactions.
• Fraud detection: regular reconciliation catches any suspicious or unauthorized transactions early.

General ledger reconciliation FAQs

Why is general ledger reconciliation important?

General ledger account reconciliation lets you identify and correct discrepancies in your financial data that are essential for accurate reports and statements.

Financial clarity improves your reputation with stakeholders and helps you evaluate the financial health of the business and make proactive, informed decisions.

How do you balance a general ledger account?

The dual-entry accounting system has separate columns for debits and credits for each GL account.

The debit and credit amounts must be equal for the general ledger to balance.

You may need to adjust entries to correct any discrepancies.

How can general ledger software help businesses track their financial performance?

General ledger account reconciliation software centralizes your financial data and automates processes like reconciliation, updating the information automatically to provide a real-time overview of performance.

By reducing the workload, companies can have more time to perform analytical tasks.

What’s the difference between a balance sheet and a general ledger?

A balance sheet shows the company’s financial position at a specific moment in time, but the general ledger contains detailed records of all your financial transactions. 

The data in the GL is used to create statements like the balance sheet.

What’s the difference between bank reconciliation and general ledger?

The general ledger is a record of all your financial transactions.

To perform bank reconciliation, you need to check the details in the GL against your bank statements to make sure they match.

What are automated reconciliations?

Automated reconciliations are performed by software rather than manually by a human.

Software pulls in the relevant documentation, automatically compares the information, and either flags discrepancies or verifies accuracy.