A discrepancy of $15,000 is found between the general ledger and a subsidiary ledger for accounts receivable. Outline your systematic approach to identify the root cause of this variance, detailing the steps you would take to reconcile the accounts.
technical screen · 5-7 minutes
How to structure your answer
MECE Framework: 1. Verify Data Integrity: Confirm both ledgers are current and correctly dated. 2. Compare Balances: Reconcile beginning balances. 3. Transaction-Level Review: Systematically compare individual transactions for the period, focusing on debits/credits, dates, and amounts. Use filtering for amounts near $15,000 or half ($7,500). 4. Identify Discrepancies: Pinpoint unmatched transactions, incorrect postings, or missing entries. 5. Investigate Root Cause: Determine if errors are due to data entry, system glitches, timing differences, or unrecorded transactions. 6. Propose Adjustments: Recommend specific journal entries to correct the variance. 7. Prevent Recurrence: Suggest process improvements or controls.
Sample answer
My approach leverages a systematic, MECE (Mutually Exclusive, Collectively Exhaustive) framework. First, I'd ensure both the general ledger and the accounts receivable subsidiary ledger are current and reflect the same reporting period. Next, I'd compare the beginning balances to confirm they match. Then, I would perform a detailed, transaction-level review. I'd export both ledgers into a spreadsheet and use VLOOKUPs or pivot tables to match transactions by date, amount, and reference number. I'd specifically filter for transactions around $15,000 or $7,500 (as two $7,500 errors could sum to $15,000). Once discrepancies are identified – such as unmatched entries, incorrect amounts, or timing differences – I'd investigate the root cause (e.g., data entry error, unrecorded transaction, system interface issue). Finally, I would prepare the necessary adjusting journal entries to correct the variance and implement process improvements to prevent future occurrences, such as enhanced reconciliation procedures or system checks.
Key points to mention
- • Systematic, step-by-step approach (e.g., top-down, then drill-down)
- • Verification of reporting periods and beginning balances
- • Comparison of total debits/credits and individual transactions
- • Investigation of common discrepancy sources (e.g., unposted items, timing differences, data entry errors, system integration issues)
- • Use of technology/tools for efficiency (e.g., Excel functions, reconciliation software)
- • Root cause analysis and implementation of preventative controls
- • Documentation of findings and adjustments
Common mistakes to avoid
- ✗ Jumping directly to individual transaction review without first verifying period and summary totals.
- ✗ Failing to check beginning balances, which can indicate a prior period error.
- ✗ Not documenting the reconciliation process and findings adequately.
- ✗ Focusing solely on the dollar amount without understanding the underlying transaction types.
- ✗ Neglecting to identify and address the root cause, leading to recurring discrepancies.