How to prepare general ledger to sub-ledger reconciliation

2. Real-life example of accounts receivable reconciliation

Let's now work through a real life example of an accounts receivable reconciliation. Suppose, on June 30, 20X9, the balance in the G/L accounts receivable account was $2,790. The total balance of the detailed accounts receivable listing (sub-ledger) amounted to $2,900. The following additional information was also available:

  • Discounts in the individual accounts amounting to $80 have not been recorded in general ledger.
  • The sales day book was understated by $200.
  • An invoice has been recorded in the individual customer account as $980 instead of $890.
  • A debit balance of $100 has been omitted from the detailed listing.

We need to prepare the accounts receivable reconciliation as of June 30, 20X9.

Step 1: Compare G/L balance to the sub-ledger balance

Comparison of G/L and sub-ledger balances shows that they do not equal ($2,790 and $2,900 respectively). Therefore, we need to proceed analyzing the G/L and sub-ledger balances to identify the differences.

Step 2: Investigate the reasons for difference(s)

We can use the information provided initially to identify the differences. For the differences discovered we should decide where (i.e. G/L or sub-ledger) adjustments should be made:

Errors Discovered

Reason for Difference

Adjustment

Discounts in the individual accounts amounting to $80 have not been recorded in the G/L

Omission from G/L

Adjust G/L

The sales day book was understated by $200

Adding up error

Adjust G/L

An invoice has been recorded in the individual customer account as $980 instead of $890

Transposition

Adjust sub-ledger

A debit balance of $100 has been omitted from the detailed listing

Omission from the list of customer account balances

Adjust sub-ledger

The first two errors relate to adjustments in general ledger account, two last errors relate to corrections in sub-ledger.

Step 3: Adjust G/L and/or sub-ledger

When adjusting the balance per G/L, you can post the journal entries to the G/L to make the corrections. On the other hand the changes in the sub-ledger do not have to be adjusted via journal entries in the G/L because the sub-ledger feeds into the G/L. So, in the case of adjustments in the sub-ledger, you should make corrections to items in the sub-ledger.

Illustration 3: General ledger to sub-ledger reconciliation statement

Balance per general ledger:

$ 2,790

Add / (Subtract) Items in general ledger not in sub-ledger:

 
 

Adding up error

200

Add / (Subtract) Items in sub-ledger not in general ledger:

 
 

Omission (discount allowed)

(80)

     

Adjusted balance per general ledger

2,910

   

Balance per sub-ledger

2,900

   

Difference between general ledger and sub-ledger

10

   

Reconciling items (if any)

 

Balance omitted from detailed listing

100

Transposition in the customer account

(90)

Total reconciling items (= Difference)

10

Step 4: Compare adjusted balances

Compare G/L balance to sub-ledger balance again, after all necessary adjustments were made. They agree (both equal $2,910), so the reconciliation process is completed.

As mentioned before, reconciliation is an important process to ensure company's balances are stated correctly. Reconciliations should be prepared timely, by knowledgeable employees, and include detailed analysis of reconciling items. Reconciling items should be adjusted in the ledger when deemed necessary. Proper segregation of duties should be put in place for the reconciliation process. Items on the bank statement but not in cash accounts should be posted to accounting records to ensure the financial statements are not misstated at a period end.

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