How often do you update your general ledger from your utility billing system? How often do you reconcile the accounts receivable from your general ledger with your billing system?

Many utilities only update the general ledger monthly, some less frequently than that. Some only reconcile the general ledger once a year, at audit time. Let’s look at why I don’t think this is a good idea.

What is the difference?

For starters, let’s be sure we are on the same page with what I mean by general ledger interface and general ledger reconciliation.

General ledger interface

A general ledger interface is a feature of many utility billing systems that creates the debits and credits for your general ledger for all activity in the billing system. If you are using accrual accounting, three types of activity in the utility billing system impact the general ledger:

• Billings debit accounts receivable and credit revenues
• Payments debit cash and credit accounts receivable
• Adjustments can debit or credit accounts receivable and revenues, depending on if it is a positive or negative adjustment to the customer’s account

Does your utility billing system include an interface that creates general ledger entries that transfer directly to the general ledger or can be imported? If so, hopefully you are doing this on a daily basis.

If not, you can still use reports from the utility billing system to create daily journal entries to record all billings, payments, and adjustments. Granted, this is not as convenient as having a billing system that creates the journal entries, but it’s better than doing nothing.

General ledger reconciliation

Before I get too far, how about a brief refresher for those who aren’t accountants? A control account is a summary-level account in the general ledger that contains totals for transactions that are stored in subsidiary ledger accounts. A subsidiary ledger stores the detail for a general ledger control account.

With a utility billing system, the individual customer balances represent the subsidiary ledger and the corresponding accounts receivable account in the general ledger is the control account.

General ledger reconciliation refers to the practice of ensuring that your subsidiary ledger balances to the control account. In the utility billing world, this usually means comparing an accounts receivable report from the billing system with the corresponding accounts receivable account in the general ledger.

Why update the general ledger daily?

I strongly advocate updating the general ledger on a daily basis, or at least as often as you have activity. By doing so, you can rely on the balances in the general ledger to always be accurate and up-to-date. I realize that with online banking, the need to rely on cash account balances in the general ledger isn’t as important as it once was, it’s still a good business practice to update the general ledger daily.

How often should I reconcile the general ledger?

If you’re just getting started with a general ledger interface, or if you’ve had difficulty getting one to work, I recommend taking the time to reconcile daily. It’s much easier to find the reason you are out of balance if you only have one day’s worth of transactions to work with. Once you have refined your general ledger interface and you are sure it’s working well, reconciling once a month is sufficient.

Are you having trouble reconciling?

Are you having difficulty getting a general ledger interface to work? If you are, please give me a call at 919-673-4050 or email me at gary@utilityinformationpipeline.com to see how a business review could help.

© 2024 Gary Sanders