How is Your General Ledger Reconciliation Going…?

Some utilities wait for their annual audit to be complete and then adjust their accounts receivable based on the auditor’s adjusting entries. Their general ledger accounts receivable balances then remain static for the next twelve months until they repeat the process.

Does this describe your utility? Or have you tried and not succeeded at reconciling with the general ledger? In either case, this issue should prove helpful as we examine how to reconcile with the general ledger.

Does your billing software interface with your general ledger?

If the answer to this first question is “No”, it might be time for you to consider new billing software. In today’s market, any reputable billing software should be capable of interfacing to a general ledger system, regardless of whether the general ledger software is from the same vendor or a third party system.

How often are you updating the general ledger?

Assuming that your billing system does interface with your general ledger, are you updating the general ledger daily? If not, then you are not taking full advantage of the general ledger interface and you can’t rely on your account balances to be correct. Cash and accounts receivable accounts will have incorrect balances if payments are not updated to the general ledger daily.

Does your general ledger include multiple utility receivable accounts?

Does your general ledger contain more than one utility accounts receivable account? For example, do you track water and sewer receivables to different accounts? Or do you bill for services that are accounted for in different funds, such as water and electric? If you do, does your billing software provide a report that details how much is outstanding by service, corresponding to each receivable account? If the answer to this last question is “No”, please refer back to the first section above.

Are you reconciling on a regular basis?

For those who aren’t accountants, how about a brief review of Accounting 101? A subsidiary ledger contains detailed transactions that aren’t posted directly to the general ledger. A control account is a summary level account in the general ledger that contains totals for transactions that are stored in a subsidiary ledger. The individual customer balances in your utility billing system represent the subsidiary ledger, while the corresponding accounts receivable account in the general ledger serves as the control account.

Are you reconciling the balances in the utility billing system with the corresponding accounts receivable account in the general ledger, at least monthly? If not, I encourage you to start doing so and make the reconciliation part of your regular month-end process.

If you’re not reconciling, are you wondering how to get started?

To start the process of reconciling with the general ledger, you need to pick a starting point. The first of a month is an ideal time to start. You will need to establish the beginning balance by running an outstanding accounts receivable report from your billing software. If your billing system has an aged trial balance, this is an excellent report to use. If you will be reconciling to multiple accounts receivable accounts, you will need to run the report from your billing software that gives the total owed by service.

Once you establish the beginning balance, you will need to adjust the receivable account(s) in the general ledger so that they agree with the subsidiary ledger(s). I know – you don’t want to adjust the accounts receivable in the general ledger, especially if it has to be reduced, but this is the only way that you will be able to reconcile.

Generally, receivables are affected by three types of utility billing transactions:

• Billings and charges increase receivables
• Payments decrease receivables
• Adjustments increase or decrease receivables, depending on the type of adjustment

Each time you update billings, payments, adjustments or any other type of transaction in your billing system that impacts accounts receivable, be sure that the corresponding journal entries are updated in the general ledger.

After all transactions for the day are updated in your billing system and in the general ledger, run the appropriate reports from your billing system and compare the outstanding balances with the corresponding accounts receivable accounts in the general ledger. If the amounts are in agreement, everything with your general ledger interface is set up correctly and your work for today is done. If the amounts do not agree, you will need to research the amount that is out of balance and determine which source transactions equal that amount. You will need to correct the general ledger interface setup, enter an adjusting journal entry and start the process over again tomorrow.

As you are getting started, why go through this process every day?

I realize that it probably seems excessive to start out doing this process daily, but it should take no more than 10 or 15 minutes, depending on the number of accounts and speed of your software. By reconciling daily, you restrict the potential out of balance transactions to one day’s activity, making it easier to find the amount that the reconciliation is out of balance. Continue repeating this process daily until you feel confident that you have all of your general ledger interfaces defined correctly. Over the course of a month you should have processed every type of transaction.

Once you have reached this level of confidence, you can discontinue the daily process and make the reconciliation part of your month-end routine.