Balance Sheet Reconciliation

Balance Sheet Reconciliation is the reconciliation of the closing balances of all the accounts of the company that forms part of the company’s balance sheet in order to ensure that the entries passed to derive the closing balances are recorded and classified properly so that balances in the balance sheet are appropriate.

What is a Balance Sheet Reconciliation?

Reconciliation of balance sheet simply means the reconciliationReconciliationCompanies do reconciliation prior to closing their books of accounts to match balances in different accounts and to account for the double effect of journal entries. It assists in ensuring that the books are up to date and that there is no manipulation, fraud, missing, or incorrect entries in the firm's books of accounts.read more of closing balances of all transactional and ledger entries and accounts. It forms part of the balance sheet itemsBalance Sheet ItemsAssets such as cash, inventories, accounts receivable, investments, prepaid expenses, and fixed assets; liabilities such as long-term debt, short-term debt, Accounts payable, and so on are all included in the balance sheet.read more for a respective financial year and whether it is being recorded and properly classified, making up to the balances appropriately in the balance sheet. It is a final and crucial activity that the company performs to ensure the accuracy of its financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more before the closing of its books at the end of the financial cycle.

Balance Sheet Reconciliation

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For eg:
Source: Balance Sheet Reconciliation (wallstreetmojo.com)

Types/Components of Balance Sheet Reconciliation

There are two types of formats in which a balance sheet can be prepared. One is the horizontal format or called the T-format, and the other format is the Vertical Format. The contents in both the format are, however, the same. It is only the way it gets presented is different. Presently the vertical format is widely being in use.

The components of the balance sheetComponents Of The Balance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company.read more comprise data, which would either increase or decrease revenue. Hence many of these would have already been computed. In contrast, the preparation on income and expense / Profit and Loss statements, and a few would be carried forward from the previous year’s balances shall merely have the final balances available in these accounts.

Ideally, a balance sheet would have the following components:- “Assets, Liabilities, and Owner’s Equity.”

Balance Sheet Reconciliation Template

Given Below is the Template of the Balance sheet reconciliation.

Company Name
Balance Sheet as at MM/DD/YYYY
 
Fixed assets     
Intangible assetsIntangible AssetsIntangible Assets are the identifiable assets which do not have a physical existence, i.e., you can't touch them, like goodwill, patents, copyrights, & franchise etc. They are considered as long-term or long-living assets as the Company utilizes them for over a year. read more  xxx It is the total value of development costs incurred by the business plus the cost of the license it holds for selling its goods.
Tangible assetsTangible AssetsAny physical assets owned by a firm that can be quantified with reasonable ease and are used to carry out its business activities are defined as tangible assets. For example, a company's land, as well as any structures erected on it, furniture, machinery, and equipment.read more  xxx It is the cost of the business premises, furniture
and equipment, less depreciation charged since first using the assets
Investments  xxx It is the value of shares owned in DEF Utilities PLC
      
   xxx  
Current assets      
Stock  xxx It is the total value of goods bought from suppliers that have not yet been sold plus raw materials held for production plus the value of work in progress.
Debtors     
Trade debtors xxx  It is the total of the amounts customers owe, less bad debtsBad DebtsBad Debts can be described as unforeseen loss incurred by a business organization on account of non-fulfillment of agreed terms and conditions on account of sale of goods or services or repayment of any loan or other obligation.read more and amounts considered uncollectable
Prepayments and accrued incomeAccrued IncomeAccrued Income is that part of the income which is earned but hasn't been received yet. This income is shown in the balance sheet as accounts receivables.read more xxx  It is the maintenance fee payable annually in advance to the computer software company.
   xxx  
Cash at bank and in hand  xxx It is the total of cash kept on site and the balance on the business’ current account with the bank.
   xxx  
Creditors: amounts falling due within One Year    Also known as current liabilitiesCurrent LiabilitiesCurrent Liabilities are the payables which are likely to settled within twelve months of reporting. They're usually salaries payable, expense payable, short term loans etc.read more – liabilities are shown as negatives because they are amounts owed by the business.
Bank loans and overdrafts  xxx It is the portion of the business’ bank loan, which is due to be repaid in the next twelve months.
Trade creditors  xxx It is the total of the amounts owed by the business to its suppliers for goods it bought to sell to its customers.
Other creditors including tax and social security  xxx It is the value of tax and national insurance contributions deducted from employee salaries that have not yet been paid over to the Inland Revenue.
Accruals and deferred incomeDeferred IncomeDeferred Revenue, also known as Unearned Income, is the advance payment that a Company receives for goods or services that are to be provided in the future. The examples include subscription services & advance premium received by the Insurance Companies for prepaid Insurance policies etc. read more  xxx It includes interest due to the bank loan since the last repayment.
   xxx  
Net current assets   xxx Also known as working capital – this shows the business’ ability to meet current obligations.
Total assets less current liabilities  xxx  
Creditors: amounts falling due after more than one year     
Bank loan  xxx It is the portion of the business’ bank loan, which is due to be repaid in over one year.
      
Net assets  xxx  
      
Capital and reserves     
Called up share capitalShare CapitalShare capital refers to the funds raised by an organization by issuing the company's initial public offerings, common shares or preference stocks to the public. It appears as the owner's or shareholders' equity on the corporate balance sheet's liability side.read more  xxx These are the funds invested by the owners in the business, e.g., to finance its assets.
Profit and loss account  xxx These are the profits made since the start of the business, fewer expenses, and amounts paid to the owners as dividendsTo The Owners As DividendsDividend is that portion of profit which is distributed to the shareholders of the company as the reward for their investment in the company and its distribution amount is decided by the board of the company and thereafter approved by the shareholders of the company.read more.
      
Shareholders’ funds  xxx  

Examples of Balance Sheet Reconciliation

Now, let’s see some examples of the Balance sheet reconciliation.

Balance Sheet Reconciliation Example #1

Following is the trial balance of M/S ABC at the end of the year. Prepare a balance sheet for the same.

balance sheet reconcilation example 1.1

Solution:

Below is the reconciliation of the Balance Sheet.

balance sheet reconcilation example 1

We note here that the total net assets are equal to total net liabilities (740,000)

Balance Sheet Reconciliation Example #2

At the end of March, 20X6 the balances in the various accounts of ABC & Company are as follows:

example 2.1 - ABC & Company

Prepare the balance sheet of ABC & Company as per the format.

Solution:

Below is the balance sheet reconciliation.

example 2 - ABC & Company

Again, we see that the total assets are equal to total liabilities.

Advantages

Reconciling of balance sheet shall provide many and multiple benefits. However, a few of the key and main benefits are:

Disadvantages

Manual reconciliation of balance sheets or any accounts is prone to have errors due to the manual intervention involved. Hence it involves a risk of data manipulation, missing the recording of data, etc.

Recommended Articles

It has been a guide Balance Sheet Reconciliation. Here we discuss how to reconcile the Balance sheet using closing balances, ledger entries, and accounting transactions along with practical examples. You can learn more about accounting from the following articles –

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