For many accounting teams, the laborious, paper-filled month end close process takes up far too many days of the month—as soon as you’re done, it’s time start all over again! In a recent webinar, Mike Whitmire, co-founder and CEO of FloQast, reveals the accounting definition of reconciliation and shares a better, faster month end close process.
Reconcile is the act of bringing two data sets into agreement, he says. Similarly, tie-out is the act of agreeing an ending balance from the general ledger to the ending balance on a secondary supporting document. “At FloQast, our definition of closed books is that all your documents are organized, you’ve performed all of your procedures, and you’ve tied out your whole trial balance,” he says.
How to tie-out and reconcile your accounts
The close process is a challenging one. Many accounts aren’t tied out regularly, and much of the supporting documentation is poorly organized. A common method for tying out the trial balance is using a tie-out binder, what Whitmire calls a manual, painful process that “kills a lot of trees.” This leads to static documentation that is hard to understand when any changes are made to the document or in the ERP system. A lack of consistency in how reconciliations are structured slows the review process for the controller, accounting manager, and auditors.
Whitmire provides a four-step process for assessing the effectiveness of the reconciliation process:
Step 1: Perform a completeness check. “Ask yourselves if you’re tying out every balance sheet account—and how frequently,” he says. “In addition, review the current state of each account by asking how it’s currently tied out, how each reconciliation is structured, and why it’s structured that way.”
Step 2: Standardize. When you standardize your processes, reconciliations are well-documented, and everyone on your team understands the purpose, the procedures, and the common reconciling items, Whitmire says. A consistent process allows you to reallocate resources to ensure you’re meeting deadlines. In addition, reviews are accelerated, there are fewer errors, and life is a lot simpler for auditors.
FloQast supports three types of standardized reconciliations—best-practice templates that are customizable to any type of close process:
Whitmire provides a four-step process for assessing the effectiveness of the reconciliation process:
Step 1: Perform a completeness check. “Ask yourselves if you’re tying out every balance sheet account—and how frequently,” he says. “In addition, review the current state of each account by asking how it’s currently tied out, how each reconciliation is structured, and why it’s structured that way.”
Step 2: Standardize. When you standardize your processes, reconciliations are well-documented, and everyone on your team understands the purpose, the procedures, and the common reconciling items, Whitmire says. A consistent process allows you to reallocate resources to ensure you’re meeting deadlines. In addition, reviews are accelerated, there are fewer errors, and life is a lot simpler for auditors.
FloQast supports three types of standardized reconciliations—best-practice templates that are customizable to any type of close process:
- Lead sheet: The best use case for this template is a manual process such as accruals, where many manual items roll up to one number.
- Rollforward: This template works well for items with many ins and outs, such as capitalized software.
- General ledger to subledger is ideal for semi-automated accounts with many top-level reconciling items, such as deferred revenue. In this template, the items are displayed, along with explanations.
Step 3: Get organized. There are three main ways to organize your folder structure for supporting documentation: by individual, balance sheet account, and by time period. Whitmire recommends the latter as a best practice. “The FloQast application uses this structure, which allows accounting teams to contemplate the close holistically,” he says. “The review process is faster, it’s easy to access related documents, and it reduces time on PBC document requests.”
Step 4: Make reconciliations dynamic. Using cloud technology and a unique audit-inspired process, FloQast connects with both Excel workbooks and ERP software to automate the tie-out process and enable dynamic reconciliation. The system captures any changes even after the review process, ensuring ongoing accuracy.
Achieve a more accurate and complete balance sheet where everything is tied out.
Want 30% faster close? RKL can help!
FloQast users know and apply the true definition of reconciliation. As a result, they’ve reduced their close by about 30%, while having peace of mind knowing their balance sheet is accurate and complete—everything is tied out. If you’re ready for a faster, more accurate close, view the webinar and then contact the experts at RKL to get started today!
