Reconciling Item Types

Every reconciling item may be classified as either Required Adjustment, Timing Item, List Component or Unresolved. This is an optional selection, but it helps to identify the reconciling items that are truly "errors" in your accounting records.

The definitions of the Reconciling Item Types are as follows:

Required Adjustment (R)

Certain reconciling items between the General Ledger balance and the supporting detail, such as a trial balance or other analysis, require adjustment to the General Ledger balance. These items generally relate to errors noted during the reconciliation process or are un-reconciled differences.

An example of this type of reconciling item can be illustrated by using the cash reconciliation process. Assume a company has an interest bearing account with a bank. The bank statement includes interest earned during the month. If the company does not know the amount of the interest earned, it is unlikely that they have increased the General Ledger balance for the interest credited by the bank. During the reconciliation process it is noted that the interest has not been recorded in the General Ledger and it is shown as a reconciling item. This can only be corrected by creating an entry and recording it in the General Ledger.

In most cases, a Required Adjustment represents an amount that should have been recorded to make the General Ledger correct before issuing the company's financial statements.

Timing Item (T)

Reconciling items that are timing in nature are those items that reconcile between supporting data, such as trial balances, and the amount recorded in the General Ledger, but by their nature do not require an adjustment of the balance in the General Ledger. These items would normally correct themselves as the normal course of business events eventually occurs.

An example of a timing item would be cash received for accounts receivable that has not been posted to the detailed accounts receivable trial balance. Any cash received prior to a period end cut-off would be pasted to the General Ledger as a reduction of the Accounts Receivable balance. If the cash received has not been posted to the detailed trial balance, then the trial balance is higher than the General Ledger balance. The General Ledger balance, however, is correctly stated. Such cash would be shown as a reconciling item, but would not result in an adjustment. The item should self clear at the time the cash receipt is processed in the accounts receivable system.

Another example would be outstanding checks in a bank account reconciliation. In this instance, the General Ledger Cash balance is reduced at the time checks are prepared and released. The checks do not reduce the cash balance at the bank until the check clears the bank where the account is maintained. Accordingly, this is a timing event. The outstanding checks must be shown as a reconciling item, because the bank account balance is higher than the General Ledger account balance. The reconciling item clears itself when the check clears the bank - no adjustment of the General Ledger balance is required.

List Component (L)

In RecWizard there are times when an item is not a difference or error at all. You are simply further explaining the balance in the account by clarifying what this particular item is.

An example of this would be the Petty Cash account that simply lists who has the Petty Cash as of that particular Period End Date. To show that the item doesn't require an adjustment and is not a timing item, you would note that the item is a List Component.

Unresolved (U)

Sometimes you just don't have the answer right now. You might be constrained by time limitations, or there might be other people you have to collect information from. But you must say something about this item. It's not yet clear that the item is wrong (a Required Adjustment) or that it is a Timing Item or List Component. Classifying an item as Unresolved means you still have some research to do to resolve the item. But you still have some visibility regarding the fact that this item has the potential for being an error.

An example of an Unresolved item would be a journal entry made to your account by someone else and that JE doesn't have adequate backup documentation - and that person is on vacation! Until you get additional information you are not able to definitely state that the item is valid or an error.

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