What the review covers
The scope depends on the business and accounting framework. Common areas include cash, receivables, payables, payroll liabilities, loans, inventory, and intercompany balances.
Compare the general ledger with relevant subledgers, statements, and supporting schedules using a consistent reporting date. Not every account has an external statement.
Explain differences before adjusting
A difference can result from timing, missing transactions, duplicates, incorrect allocation, or classification. A valid timing item may need documentation and subsequent clearing rather than an immediate adjustment.
Hypothetical example: A customer receipt is posted on December 31 but appears in the bank's records on January 2. Review the payment facts and accounting policy to determine the correct year-end treatment.
An effective close workflow
Assign account owners and reviewers, obtain supporting records, investigate differences, and post only supported and approved corrections. Document unresolved items, materiality assessments, and follow-up responsibility.
Review cutoff and subsequent activity where relevant. Preserve the original records and correction trail.
Year-end is not a substitute for regular reconciliation
Monthly reviews can reduce accumulated exceptions. Annual reconciliation supports the financial close but does not, by itself, guarantee compliant statements, detect all fraud, or replace an audit.
Reference: Cornell's account-reconciliation guidance.