General ledger reconciliation: step-by-step techniques for accuracy and compliance

An unreconciled discrepancy doesn't just sit there: iIt compounds. Organizations lose an estimated 5% of revenue to fraud annually, much of which proper reconciliation would catch.⁵ Beyond the numbers, this is where you spot fraud early and avoid decisions based on bad data. This guide covers the complete process–what to do, when, and how to document it.

What is general ledger reconciliation?

General ledger reconciliation is about making sure your GL balances line up with what really happened.¹ You're comparing them to the underlying records–things like subsidiary ledgers, bank statements, and invoices, or any other documents that back up those transactions. The GL shows every debit and credit running through the business, and reconciliation is where you pause to see if what's recorded actually matches reality.

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It's verification work, not just bookkeeping. You're looking for gaps, timing differences, and errors that somehow crept in.

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If your company shows $50,000 in March revenue in the GL, but the sales subledger only shows $48,500, that $1,500 gap needs explaining. Maybe it's down to timing–perhaps an invoice hit the GL but hasn't posted to the subledger yet. Or someone fat-fingered an entry. Or it could be a duplicate posting. The point is, reconciliation catches these issues before they compound into bigger problems.

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Essential components of the GL

The general ledger consists of multiple integrated components that function together. Reconciliation issues typically happen when those components don't align properly.

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Accounts & posting

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The chart of accounts organizes financial data into standard categories:assets, liabilities, equity, revenue, expenses. Each account has a unique number for identification purposes. The double-entry bookkeeping system requires every transaction to affect at least two accounts.⁴ Assets and expenses increase with debits. Liabilities, equity, and revenue increase with credits.

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Transaction sources

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GL entries originate from multiple systems throughout an organization. Sources include sales systems, purchasing, payroll, treasury operations, and manual journal entries. Each transaction requires documentation that can be traced during reconciliation.¹

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Subsidiary ledgers

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Subsidiary ledgers provide transaction detail that rolls up into GL control accounts.¹ The system maintains AR by customer, AP by vendor, inventory by item, and fixed assets individually.

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When a customer pays a $5,000 invoice, the transaction records in the AR subledger:

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Debit Cash (1000) $5,000
  Credit AR (1200) $5,000

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The entry posts to the GL and flows through to the trial balance and balance sheet.

GL reconciliation process: a step-by-step guide

Step 1: Preparation

The preparation phase involves gathering required statements and reports before starting reconciliation.¹ ⁸ Organizations must collect bank statements for the period, plus subsidiary ledger reports, GL account details, prior reconciliations, and outstanding items lists. All transactions for the period must post to the system before reconciliation begins. Incomplete posting requires repeating the reconciliation process after remaining transactions post.

Step 2: Review & comparison

The comparison process matches GL balances to source documents or subledger totals.¹ Bank accounts are matched to bank-statement ending balances. AR and AP control accounts are compared to subledger totals. When balances don't match, the process requires investigating transaction-level detail to identify the discrepancy’s source.

Step 3: Discrepancy identification

The identification process marks transactions appearing in both the GL and source documents. Unmarked items represent discrepancies that need investigation.

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Common discrepancy types include:¹ ⁶

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• Timing differences (checks written but not cleared;, deposits in transit)
• Unrecorded bank fees
• Duplicate postings
• Data entry errors
• Transactions posted to incorrect accounts

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Organizations must document all identified discrepancies for resolution. ¹ ⁴

Step 4: Adjustments & finalization

Errors identified during reconciliation require immediate correction. Timing differences don't require adjustment as these are resolved in subsequent periods.¹

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For example, a revenue account (4100) shows $125,000, but the sales subledger shows $122,500. Investigation identifies a duplicate entry from March 15.

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Correcting entry:

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Debit Revenue (4100) $2,500
  Credit Accounts Receivable (1200) $2,500

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Entry description: "Invoice #3847, Smith Corp – duplicate posting found March 31."

Step 5: Documentation

Documentation requirements include starting balances, reconciling items with explanations, adjustments made, final reconciled balance, preparer name and date, and reviewer name and date.¹ ⁴ This documentation provides an audit trail and reduces the time needed for subsequent reconciliations.

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A 50-person professional services firm will typically spend 2-3 hours on steps 1-2, 4-6 hours on steps 3-4, and 1-2 hours on step 5. In total, 7-11 hours monthly.

Types of reconciliation

Organizations perform multiple reconciliation types based on account classification and materiality.⁶ Bank and AR/AP reconciliations are the highest priority due to material impact on financial statements. Remaining accounts can be reconciled less often based on resource constraints.

Bank reconciliation

Bank reconciliation is the most common reconciliation type. This process verifies that the cash balance in the general ledger matches the bank statement’s ending balance.¹

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For example, the GL shows $87,500, but the bank statement shows $85,200. The difference typically results from timing or items the bank recorded first. Reconciling items include $3,100 in deposits in transit that have not cleared yet, $800 in outstanding checks, and $200 in bank fees that the bank recorded but the organization has not.

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After posting adjusting entries for unrecorded bank fees, both balances match at $87,500. The reconciliation demonstrates that all items are accounted for in the appropriate period.

Subledger vs. GL reconciliation

Subsidiary ledgers maintain detailed records: AR by customer, AP by vendor, inventory by item, and fixed assets individually. These totals roll up into GL control accounts. The process compares the detailed subledger total against the GL summary number. Discrepancies typically result from timing differences or manual journal entries that bypass the subledger entirely.¹ ⁶

Credit cards & payments

Credit-card reconciliation verifies expense accounts against monthly statements. Payment reconciliation matches GL records for AP payments against the check register and cleared bank transactions. Many organizations handle these reconciliations monthly, but higher-volume operations may reconcile weekly.

GL vs. subledger reconciliation

GL control accounts should match subledger totals. GL control accounts should match subledger totals. When they don't, that's where errors hide.

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The GL tracks summary balances: total AR, total AP, total inventory. Subledgers track the detail–which customers owe money, which vendors you owe, and what's sitting in your warehouse. When transactions post to one system but not the other, you get discrepancies.

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Here's a common scenario: AR subledger shows total $250,000 across 150 customer accounts. GL Account 1200 (AR Control) shows $248,200. The $1,800 discrepancy traces to a manual journal entry from March 20. This credit memo posted to the GL but not the subledger. This happens when someone bypasses normal posting workflows.

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Key differences

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GL control accounts are summary-level: one balance for all customer receivables. Subledgers break that down by customer, showing specific amounts owed. These should reconcile exactly, but timing differences, interface errors between systems, and manual entries cause mismatches.

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Integration best practices

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Companies should reconcile GL to subledgers monthly, at a minimum.⁶  You should investigate discrepancies immediately and limit manual journal entries that bypass subledger posting.⁴ When manual entries post, document which subledger needs the corresponding adjustment. Modern ERP systems automate integration, but organizations are responsible for checking that the automation works correctly.⁹

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Benefits of regular reconciliation

Regular GL reconciliation is needed for organizations subject to SOX, GAAP, or IFRS requirements.² ³ Beyond compliance, the process provides measurable protection.

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Compliance

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Public companies must reconcile accounts timely under Sarbanes-Oxley.² ³ GAAP and IFRS require accurate, reconciled financial statements. Failed reconciliations trigger audit findings and potential restatements.³ 

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Fraud prevention

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Reconciliation identifies unauthorized activity. For example, a controller discovers during monthly bank reconciliation that $8,500 in unauthorized wire transfers have taken place over 3 months. Early detection limits the loss and enables recovery.

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Fraud creates discrepancies. Reconciliation catches these variances through comparison of recorded amounts to source documents.⁵

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Financial decision-making

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Decisions require accurate data. Regular reconciliation ensures decisions based on accurate financials rather than unverified information. According to benchmarking data from the American Productivity and Quality Center (APQC), the median general ledger reconciliation takes six hours monthly. Organizations in the 75th percentile spend an average of ten hours on reconciliation.⁶ At typical accounting department labor rates of $40–$80 per hour, this represents a monthly investment of $400–$800 for material account reconciliation. Leading automated reconciliation systems reduce this time by 70–88% while achieving 97% accuracy in transaction matching, with return on investment typically happening within 3-6 months.

AI-powered reconciliation

Machine-learning platforms match transactions automatically and flag variances. DualEntry's general ledger software and similar systems perform this function. The system learns from reconciliations and improves accuracy over time.

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These platforms handle routine matching and identify variances as they occur. The systems route exceptions to appropriate reviewers and maintain documented audit trails.⁴

Manual vs. automated reconciliation

Reconciling 50 GL accounts manually requires significant time investment. With automation, organizations can substantially reduce reconciliation time while improving accuracy.⁹

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Remember that implementation timelines typically require 90-120 days depending on organizational complexity, and training on the platform should be done before it's activated. Data must be clean before implementation begins. Organizations with an inconsistent chart of accounts or transaction coding must address those data-quality issues first – tools don’t fix existing data problems.

Implementation tips

• Organizations should start with accounts consuming most reconciliation time (think bank, AR, and AP).⁶ Clean up their data before implementation, not during.
• Remember that iImplementation timelines usually take 90 days minimum, and raining on the platform should be done before it’s activated.
• Make sure your processes and workflows are solid before implementation. Even the best general ledger software won't fix workflow problems, and AI functions most effectively when processes are already in place.⁹
• Standard practices prevent most reconciliation issues.⁴ ⁶ When problems arise, organizations need practical solutions rather than theoretical approaches.

Scheduling

Organizations should reconcile material accounts–cash, AR, AP, revenue, COGS–monthly at a minimum.⁶ These accounts represent the highest risk for financial statement accuracy. For remaining accounts, quarterly reconciliation will do. Aim to complete reconciliations within 5 business days of period close, while transactions are recent. Waiting longer makes discrepancies harder to trace.

Document standards

Effective documentation saves time during close and error identification. Documentation should include the preparer’s name, the completion date, accounts included, discrepancies found with explanations, adjustments made, and the final reconciled balance.¹ ⁴ When next month arrives, prior documentation provides a starting point and enables faster completion.

Resolving complex discrepancies

Some discrepancies need investigation. For example: $12,500 sits in a suspense account for 3 months. Investigation reveals that a $8,000 customer payment was misapplied (should be Invoice #4521, but was posted to #4421), a $3,200 vendor refund is awaiting proper GL account assignment, and $1,300 bank error was corrected but not yet reclassified. Resolution requires 3 correcting entries and coordination with AR and AP.

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To learn more about reconciliation check our article: Real-Life General Ledger Examples (With Entries)

Teams lacking resources

Organizations with limited resources should prioritize based on materiality.⁶ So, rather than reconciling all 200 GL accounts monthly, focus on material accounts monthly and reconcile remaining accounts quarterly. This targets effort where it matters most for financial statement accuracy.

General ledger reconciliation FAQ

Conclusion

This guide covers the complete reconciliation methodology, from preparation to documentation. A key takeaway is that organizations not reconciling material accounts monthly should still implement monthly processes for cash, AR, AP, revenue, and COGS.⁶ Why? Because these accounts represent the highest risk for financial statement accuracy.

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Accuracy results from consistent processes rather than month-end intensive efforts.⁴ The 7-11 hours invested monthly prevent expensive errors, identify fraudulent activity before losses compound, and enable smarter decisions based on accurate financial data.

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Companies spending 10+ hours monthly on manual reconciliation should think about automation platforms. AI systems handle routine matching so staff can focus on investigating exceptions instead.

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