What is a balance sheet reconciliation?

Definition

A balance sheet reconciliation is the close work of proving every account on the Balance Sheet. In the books, it is the sweep that takes each point-in-time balance, from cash through equity, and ties it to independent support before the statements go out.

This is not one proof. It is the full set of proofs, done on the same date, so the statement as a whole is supportable.

Where it shows up

Balance Sheet: Related to proving every account on the statement as part of the close.

P&L: Related to nothing extra; the work sits on the point-in-time statement.

Cash flow: Related to cash only because cash is one of the accounts being proven.

See also: Account Reconciliation · Month-End Close · Balance Sheet

You will not find a sweep line on the statement itself. The work sits behind every Balance Sheet account a company reports at period end: cash, accounts receivable, inventory, prepaid expenses, fixed assets, accounts payable, accrued liabilities, and equity.

The Income Statement is not the object of this sweep. Profit still matters, because retained earnings and net income have to land correctly, but the proofs themselves are of point-in-time balances.

Cash flow is involved only because cash is one of those accounts. A bank reconciliation is the cash proof inside the sweep, not a separate cash-flow exercise.

How it works

Start from the trial balance. Every Balance Sheet account on that list needs a proof as of the same accounting period end.

The close checklist usually names the accounts and the support expected for each one. Cash ties to the bank, receivables to the subledger, inventory to the count, and prepaids to remaining schedules.

For accounts that move a lot, a roll-forward schedule shows how the beginning balance became the ending balance. The roll-forward is support for the movement; the sweep still has to prove the ending number.

Each account is proven on its own, then checked off. An unexplained leftover is a reconciliation discrepancy that has to be cleared or adjusted before the Financial Statement Package is issued.

Internal controls treat the sweep as a close gate. The month-end close includes this work; the close itself is bigger, covering the Income Statement, notes, and issuance, not only these proofs.

Adjusting journal entries that fall out of the sweep are recorded through posting to the general ledger. After those entries land, the trial balance is refreshed and the affected accounts are proven again.

Example

A clothing boutique has 14 Balance Sheet accounts at June 30. The bookkeeper works down the list and ties each one to support.

Inventory is $8,000 in the ledger. The physical inventory count also comes to $8,000, so that account is proven.

Cash ties to the bank, receivables to the customer list, payables to the vendor list, and the remaining eleven accounts to their own schedules. When all 14 are checked off, the June 30 Balance Sheet is a set of proven numbers, not a leftover trial balance.

If inventory had counted at $7,400, the $600 gap would have to be explained or written into the books before the boutique issued statements. The sweep is not done until every account, including that $8,000 line, is tied out.

Common mix-ups

This sweep versus a single account reconciliation. Proving prepaid insurance is one account; this page is every Balance Sheet account, done together, as of the same date.

This sweep versus the month-end close. The close includes this work, plus Income Statement review, notes, and issuing the package; the sweep is only the point-in-time proofs.

This sweep versus a trial balance. A trial balance lists every ledger account and checks that debits equal credits; it does not prove that any one of those balances is right.

Related terms

• Account Reconciliation: Proving that a ledger balance agrees to independent support.
• Reconciliation Workpaper: The documented support showing how a reconciled balance was proven.
• Supporting Schedule: A detailed worksheet backing up a single line on the financial statements.
• Month-End Close: The monthly version of the close, ending in issued financial statements.
• Trial Balance: A listing of every ledger account balance, used to check that debits equal credits.
• Balance Sheet: A statement showing what a business owns, what it owes, and what is left for owners at a single point in time.
• Roll-Forward Schedule: A schedule showing how an account moved from its beginning to its ending balance.
• Close Checklist: The task-by-task list of everything that must be done to close a period.