Balance Sheet Reconciliation: Definition, Types & Examples

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Yarab A | Dec-10-2020

Balance sheet reconciliation can be defined as a process of verifying the accuracy of information presented in the balance sheet. It includes cross-checking the closing balance of all the components of the balance sheet.

In the process of balance sheet reconciliation, the components of balance sheet such as fixed assets, current assets, current liabilities etc. are verified to ensure that the posting of entries into respective ledger accounts are accurately done. The components of the balance sheet are given below:

Balance Sheet Reconciliation

Read Balance Sheet Components to know more about the elements that a balance sheet comprises of

Types of balance sheet format

The information in the balance sheet can be presented in two different formats – ‘T’ format or horizontal format and vertical format. In both the formats, the information remains the same and only the style or the way the information is presented changes.

  • ‘T’ format or horizontal format

In ‘T’ or horizontal format, all the assets are shown on the right side and the components of liabilities are shown on the left side of the balance sheet. The sample format of ‘T’ format balance sheet is shown below:

T’ format of balance sheet generated in TallyPrime

  • Vertical balance sheet format

As the name suggests, the details in the balance sheet are presented vertically. In simple words, the components are shown one below the other. The sample format of the vertical balance sheet is given below:

Vertical format of balance sheet generated in TallyPrime

How to do balance sheet reconciliation

To do a balance sheet reconciliation, first, the closing balance of all the assets and liabilities needs to be determined. Next, the net balance of all the assets and liabilities is determined. The last step is to match the net balance of asset with the net balance of liabilities. If both the values match, then it is believed that values are accurate. If not, some errors have occurred either while recording the transactions or general ledger posting, that needs to be identified and corrected.

Balance Sheet reconciliation format

Particulars

Amount

Amount

Assets

 

 

Net Fixed Assets

XXXXX

 

Net Current Assets

XXXXXX

 

Net Investments

XXXXXXXX

 

Total Assets (A)

 

XXXXXXXX

Liabilities

 

 

Share capital

XXXXX

 

Borrowings

XXXXXX

 

Net Current Liabilities

XXXXXXXX

 

Total Liabilities (B)

 

XXXXXXXX

Both A and B should Match

 

 

Examples of Balance sheet reconciliation

The trial balance of Max Electronics for the financial year 2019-2020 is given below.

Particulars

Debit

Credit

Capital

 

  20,00,000

Secured Loans

 

    1,50,000

Duties & Taxes

 

    6,86,778

Sundry Creditors

 

36,08,753

Office Computers

    1,50,000

 

Office Furnitures

    6,00,000

 

Closing Stock

1143631

 

Sundry Debtors

  34,74,090

 

Cash-in-Hand

       72,810

 

Bank Accounts

  10,05,000

 

Using this info, let’s do a balance sheet reconciliation for Max Electronics

Particulars

Amount

Amount

Assets

 

 

Net Fixed Assets

7,50,000

 

Net current Assets

56,95,531

 

Net Investments

---

 

Total Assets (A)

 

64,45,531

Liabilities

 

 

Share capital

20,00,000

 

Borrowings

  1,50,000

 

Net Current Liabilities

42,95,531

 

Total Liabilities (B)

 

64,45,531

As you can see, the total assets and total liabilities matchindicating the values are accurate. If there is a difference, you need to identify the errors and fix them. Read Errors in Trial Balance and Procedure to Locate Errors to know more about errors that may affect the trial balance

How business management software can help?

With the automation of transactions posting and report generation in business management software, the balance sheet reconciliation task looks redundant. Using the information of transactions that have been entered, the business management software automatically posts the values into relevant reports and ensures that the values you see in financial reports are always accurate.

With TallyPrime, the powerful business management software, you just need to record day-to-day entries and all the reports including balance sheet are auto-generated. You also get the comfort of a wide variety of reports with numerous views, giving you powerful insights to run your business better.

Try TallyPrime and get amazed with a wide variety of business reports for confident decisions.

 

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