Reconciliation Account

Most SAP people might be asking, what is a reconciliation account and special general ledger indicator in SAP Financial Accounting?

First, you must understand the definition of general ledger. General ledger is the main accounting record of a business which uses double-entry bookkeeping. In SAP, the central task of G/L accounting is to provide a comprehensive picture for external accounting and accounts. Transactions that have a financial impact are captured by the general ledger. The transactions could be originated from other modules. Example, posting of goods receipt (MIGO) performed by purchaing personnel (MM module) have already a financial impact. It increases the inventory balance and increases the GR/IR clearing account. The accounting journal entry the transactions MIGO create is debit (dr) Inventory account (G/L) and credit GR/IR clearing accounts (G/L).

The general ledgers summarize all financial transactions of a Company. It is the the basis of the preparation of the Company’s Financial Statements.

Now, let’s dig it further. Reconciliation Accounts are G/L accounts that receive postings from a subsidiary ledgers. Meaning, transactions data are not posted directly to recon accounts. Example of recon accounts are Accounts Receivable, Accounts Payable and Fixed Assets G/L. For accounts receivable G/L the subsidiary ledger is the customer account. All transactions with the customers are posted directly to the customer account and the recon account is automatically updated. How this thing happen? Well, when you create a customer account you specify under the Company Code data the reconciliation account.

So, all normal transactions to the customer e.g. sale of goods are posted to the recon account defined in the customer master data. Next question would be, what G/Laccount should be updated for postings of customer down payment (advance collection)? For proper accounting, downpayment should not be posted to Accounts Receivable – trade. It should be posted to different G/L account e.g. Advances from customer. Well, how would the said transaction be posted to Advances accounts.

Reconciliation Account in General Ledger

The reconciliation account in G/L accounting is the account which is updated parallel to the sub ledger account for normal postings (for example, invoice or payment).

For special postings (for example, down payment or bill of exchange), this account is replaced by another account (for example, 'down payments received' instead of 'receivables').

The replacement takes place due to the special G/L indicator which you must specify for these types of postings.

What's need of such Reconciliation Account?

Well, with reconciliation accounts, one can generate a balance sheet or profit and loss account at any time, since amounts posted in sub-ledger are also reflected in the general ledger.