Balance sheet reconciliation is the process of checking, usually at each month-end or year-end, that every account shown on the balance sheet is supported by independent evidence. Cash is compared with bank statements, receivables with customer listings, fixed assets with the asset register, and accruals and prepayments with their working schedules. It is one form of account reconciliation, explained in full in the Account Reconciliation entry.
Each reconciliation starts from the balance in the general ledger and ends with a list of any differences, why they arose and how they will be cleared. Reviewers look for old, unexplained items, because a balance that cannot be supported may be an error, a missing entry or, occasionally, a sign of fraud.
The work is a standard step in the month-end close and follows the preparation of a trial balance. Auditors usually ask to see signed-off reconciliations for material accounts, and public companies treat them as a key internal control over financial reporting.