pankaj (Financial Analyst) (41 Points)
29 August 2020Hello Everyone,
I would like to know that in every company balance sheet reconciliation is being perfomed I have been asked in Interview One question on same thing BS Recs is performed do we performed P&L recs also? If no then what is the reason. Can someone please explain me this concept.
CA Raj Doshi
(Practising CA)
(8924 Points)
Replied 30 August 2020
pankaj
(Financial Analyst)
(41 Points)
Replied 30 August 2020
Thanks for the help Raj. To explain you in a better way. While giving interview the interviewer asked me a normal question of how do you perform balance sheet reconciliation for that i have given a reply but then he asked me another question is that does P&l reconciliation is also being done by your company. I said no, he asked me what is the reason of not performing p&l reconciliation? Thats whats my question is in this forum whether we do p&l reconciliation or not?
sabyasachi mukherjee
(27574 Points)
Replied 30 August 2020
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 30 August 2020
Since all accounts are nominal accounts, and if they are recorded on cash basis, no reconciliation is required if recorded properly. If it is accruals, few things will be checked like @ Mr. Raj C Doshi mentioned about the BS opening balances of PPE, RECEIVABLES, PAYABLES, LOANS & ADV., BANK etc. in fair value accounting, Some of the balance sheet annual re-measurement of book values will reflect in COS eg., current depreciation, expenses with payables, sales with debtors, inventory adjustments will need a reconciliation to see if correct amounts are recognised in P&L.
pankaj
(Financial Analyst)
(41 Points)
Replied 30 August 2020
Many Thanks everyone for your kind help
pankaj
(Financial Analyst)
(41 Points)
Replied 30 August 2020
I am working in a life Insurance company. During our month end close. We book all the expenses and Revenue actuals and accruals. But we only do balance sheet GL accounts reconciliation only. We dont do P&L GL accounts reconciliation. I am confused actually with the reply. Can you please explain me why the p&l accounts reconciliation is not done?
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 30 August 2020
It is conceptual: reconciliation of debtors, creditors and GST is done while bookkeeping for P&L Then accountants follow the accounting process: Transactions journals>trial balance>posting to final statements. The only adjustments are sales returns and purchase returns which are recorded as and when a transaction occurs. Then, the balance sheet equation is Assets=Equity+Liabilities. Since, accounting is in terms of fair value, changes to assets and liabilities are revised annually and this will result in increase or decrease of ownership interest in Equity=assets-liabilities (assets and liabilities are annually revised amounts based on Fair values). So, there is no need to check income statement because any changes in BS will reflect in P&L automatically reducing or increasing equity through gains and losses. Another reason is P&L transactions are historic and assets/liabilities are carried forward for an indefinite or definite future and any adjustments are adjusted to P&L where appropriate to tally the balance sheet equation.
pankaj
(Financial Analyst)
(41 Points)
Replied 30 August 2020
Thanks a lot Yasaswi. Now I understood whole thing. Many Thanks for the explanation
sabyasachi mukherjee
(27574 Points)
Replied 01 September 2020
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 01 September 2020
@ subyajit mukherji
Forgot to mention clearly that P&L classifies as nominal accounts. The topic was about PL reconciliation and my answer was in coherence.
sabyasachi mukherjee
(27574 Points)
Replied 02 September 2020
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 02 September 2020
Why? Did you invent new accounting principles like a godfather? Let’s discuss this further and I’m interested to know what went wrong here.
CAclubindia
