How to reconcile the accounts-receivable report to the general ledger

Reconciling accounts receivable means proving that the total on your AR aging report matches the accounts-receivable balance in your general ledger. When the two agree, your customer invoices, payments, and adjustments are posting to the same place. When they don't, one of your records is missing or misstating a transaction. This article walks through a practical workflow to reconcile the two and resolve the differences you find.

Gather the two reports for the same date

Pull the AR aging report and the general ledger trial balance as of the same date, usually month-end. Run the aging detail, not just the summary total, so you can trace individual customer balances. Also pull the general ledger detail for the accounts-receivable account for the period. If your software separates AR by division, location, or class, make sure both reports cover the same scope.

Keep the supporting documents behind these numbers organized. Invoices, customer payments, deposit slips, and credit memos are the documents that support the entries in your books, and the IRS notes that supporting documents should be kept in an orderly fashion, organized by year and type of income or expense (IRS, What Kind of Records Should I Keep).

Compare the totals and record the difference

Add the aging report's total receivables and compare it to the general ledger AR balance. If they match, the reconciliation is done for this period. If they don't, write down the exact difference before you start digging. A difference that equals a single invoice amount points to an unposted invoice; a difference that equals a payment amount points to a payment recorded in one place but not the other. Round differences often come from a journal entry posted directly to the AR account, bypassing the customer ledger.

Trace the detail transaction by transaction

Work through the general ledger detail for the period and match each entry to the customer-level activity:

• Invoices: every invoice in the ledger should appear on the aging report for the correct customer.
• Payments and credits: every customer payment or credit memo should reduce a customer balance on the aging report.
• Direct journal entries: look for entries posted straight to the AR general ledger account. These are the most common cause of a mismatch, because they never touch a customer record.

If the difference is large, start with the month the reconciliation last tied out and move forward one month at a time. If it's small, scan for a single transaction matching the difference amount.

Resolve the common causes

Most AR-to-ledger differences come from a handful of situations:

1. A payment posted to the ledger but not applied to an invoice. Apply it to the correct customer and invoice.
2. A direct journal entry to the AR account. If it was meant to write off a balance or correct a customer account, reverse it and post it through the customer module instead.
3. A transaction dated in the wrong period. Move it to the correct date so both reports reflect it in the same month.
4. A duplicate invoice or payment. Void the duplicate in both places.
5. A customer balance sitting in a suspense or clearing account. Move it to AR with proper customer detail.

After each correction, rerun both reports and confirm the totals now agree. Document what you changed and why, since good records help you monitor the progress of your business, prepare financial statements, and support items reported on tax returns (IRS, Recordkeeping).

Keep the reconciliation current going forward

A reconciliation is easiest when it's routine. As a practical workflow:

• Reconcile AR to the ledger every month, before closing the books.
• Restrict direct journal entries to the AR control account to one person, and require a customer-level memo for each one.
• Apply customer payments promptly rather than letting unapplied cash accumulate.
• Review the aging report for stale balances at the same time, so follow-up on collections happens on a schedule.

If you use electronic accounting software, the same basic recordkeeping principles apply to electronic records as to hard-copy records, so keep your system's audit trail intact rather than editing or deleting posted transactions (IRS, What Kind of Records Should I Keep).

Consistent reconciliation keeps your customer balances reliable, which makes collections, cash forecasting, and period-end reporting far simpler. If you'd like help setting up or clearing out an AR reconciliation, contact KDM Accounting Services Inc. and we'll talk through your books.

Further reading

For related context, read How to Handle Customer Deposits Without Distorting Your Books.

For related context, read How to Keep One Slow-Paying Customer From Running the Whole Quarter.

Sources

• IRS: Accounting periods and methods