Reconciliation of General Ledger With Sales Register: Process, Benefits and Best Practices

Businesses reconcile their general ledger information with sales register data to identify discrepancies and take corrective action. Usually, businesses prefer to do this before submitting their monthly (GSTR-1, GSTR-3B) and annual (GSTR-9, GSTR-9C) returns to reduce discrepancies and errors.

However, general ledger reconciliation can often be tricky and complex. Read along as we discuss it in detail to ease things for you.

What Is a General Ledger & Types?

A General Ledger (GL) groups transactions of similar nature. It is a master accounting record that keeps track of different financial accounts such as assets, liabilities, expenses, and revenue. 

As a business owner, you can use a general ledger to understand better how your company is doing financially and how profitable it is. This may help you make better financial decisions.

You can use a general ledger to understand your company’s financials and profitability better and make strategic decisions. 

A general ledger has various accounts, including:

• Assets
• Liabilities
• Equity
• Revenue/Sales
• Purchases
• Expenses
• Income
• Tax/Input tax credit

What Is General Ledger Reconciliation & Importance? 

General ledger reconciliation compares two or more data entries to find discrepancies. Accountants carry out this reconciliation to verify the accuracy of account balances on a company's general ledger. 

You can perform general ledger reconciliation by comparing your general ledger’s balances with third-party documents such as bank and credit card statements. 

Reconciliation helps you identify underpaid, unpaid, or overpaid taxes and fix any unintentional mistakes or omissions.

Some more reasons why it is important to perform general ledger reconciliation are:

• It guarantees the accurate representation of recorded activities and ending balances, supported by relevant documentation.
• It allows you to take prompt action and solve any discrepancies. 
• It streamlines the audit process by providing organised, accurate, well-documented financial records.
• It can unveil inconsistencies that might indicate fraudulent activities, enabling timely intervention.

Process of Reconciliation of General Ledger With Sales Register

Taxpayers can reconcile the sales register to either the revenue or tax GL. This is because both sets of GL data are not required to find discrepancies.

Here is a step-by-step process for reconciling your general ledger with the sales register:

Step 1: Input Data

Ensure the financial closure has recorded all your financial information in the general ledger. When doing so, be up-to-date with your company's reconciliation policies. 

For instance, you'll need to know how frequently the business reports asset depreciation and when to separate credit card purchases into their respective expenditure accounts. Do this bookkeeping regularly, and not just at month-end.

Step 2: Verify Closing Balances

You can verify the closing balance of your ledger using various methods, however, comparing them to third-party statements is the most common. Third-party statements include bank account statements and mortgage statements, among others.

For example, you can use your month-end bank statement to verify the cash account’s balance. 

Furthermore, you can also use other documents that have already been reconciled, such as invoices, receipts, and sub-ledgers, to verify your account balances. 

Step 3: Investigate Discrepancies

While reconciling your general ledger, various discrepancies might arise. To solve this, you must investigate and look at each transaction individually to determine what went wrong. 

Step 4: Post Adjusting Journal Entries

You can post a journal entry to fix any errors if you find any differences. Regularly performing GL reconciliations (monthly, quarterly, or annually) enables you to identify problems early on. 

If you don't fix any errors before the year ends, even small mistakes can build up and lead to a substantial misrepresentation.

Best Practices And Tips For Smooth Reconciliation Of General Ledger With Sales For Accurate GSTR-1 Reporting And Accounting

Here are some tips for the smooth reconciliation of the general ledger with sales for accurate GSTR-1 reporting and accounting:

• Before starting the reconciliation, ensure you have entered all necessary data properly.
• Use sequential invoice numbering to spot missing or duplicated transactions easily.
• Treat net off and GL contra entries separately if they are often transacted. 
• Set taxable and tax value tolerance limits — it can be +/- 1 or custom value determined by the team before reconciliation.
• Perform reconciliation at PAN or GSTIN levels and adjust data accordingly.
• Ignore transactions with the same PAN, such as stock transfers and cross-charge transactions.
• Transactions involving pure agents are handled differently. In some transactions, such as RTO fees and bank loan fees, the taxpayers act as agents to collect the fees from customers and remit payments to the appropriate parties. In these circumstances, document entries in the revenue and tax GLs will be missing, and these entries must be disregarded during reconciliation.
• Note that for positive tax figures in the sales register, the amount in the tax GL will be negative, and vice versa.
• For sales register vs. tax GL, several line items of CGST, SGST, IGST, and cess tax values for a specific document number with a specific GST rate must be combined and compared against the corresponding tax GL values.
• Establish a company-wide policy that mandates timely reconciliation of all accounts.
• Consistently assess the entire account reconciliation process to identify areas for enhancement in accuracy and efficiency.
• Conduct internal audits to identify and rectify errors before GSTR-1 filing proactively.
• Keep the master list of GL codes, revenue, and tax descriptions current. All share all the data with your team. 
• Consult tax professionals for guidance on complex reconciliation or GST-related matters.

​​Every company must reconcile its general ledger and compare data with the sales register. Any transaction not recorded in GSTR-1 leads to interest and a penalty. 

Moreover, manual general ledger reconciliation often takes significant time and work. Automation software, on the other hand, automatically imports data from all of your systems, including ERP and general ledger. It also notifies your team if any data needs to be consistent. This allows your financial team to focus on high-value projects.