Income Statement and Trial Balance Do Not Match

Last reviewed: 12/06/2011
Article ID: R10985

The information in this article applies to:

• Tabs3 General Ledger Software (GLS) Version 16, 15, 14, & 12

SUMMARY

The net activity for each Income Statement account on the Trial Balance should equal the Actual Balance for each account on the Income Statement. If the balances on the Trial Balance and the Income Statement do not match, use the procedures listed below to correct the balances.

MORE INFORMATION

The balances on the Trial Balance and Income Statement are obtained using two different methods, thereby allowing you to "cross check" the figures.

Trial Balance Figures

Beginning Balance

Asset or Liability Accounts - The beginning balance is retrieved from the prior month's ending balance on the Balances tab in the Chart of Accounts (e.g., the May ending balance is the June beginning balance).
 

Income or Expense Accounts - The beginning balance is calculated by adding the activity for each month of the fiscal year through the month prior to the Beginning Calendar Month specified (e.g., the activity for January through May is added together when June is used for the Beginning Calendar Month on the Trial Balance).

Ending Balance

All Accounts Except Retained Earnings - To calculate the Ending Balance for all accounts, the report uses the Beginning Balance plus or minus the actual journal entries ("Activity") for the specified period that the report is run.
 

Retained Earnings Account - The "Activity" for the Type "R" account is calculated by subtracting the Beginning Balance from the Ending Balance. Both of these balances are taken from the Balances tab in the Chart of Accounts.

The Gain (Loss) amount posted to the Retained Earnings account, found at the bottom of the Trial Balance, is calculated using the following formula: (Type "R" Account Ending Month Balance) - (Type "R" Account Beginning Month Balance) - (Manual Entries for the Type "R" account for the specified time frame).

Income Statement Figures

On the Income Statement, the "Actual MTD" balance for the accounts is taken from the balance information in the Chart of Accounts (i.e., for the January 2011 report the Jan 11 figure from the Balances tab is used). Since GLS stores Income Statement account balances as "Monthly Net Change", you can compare the Actual MTD balance to the net activity on the Trial Balance to verify accuracy.

Differing balances on the Trial Balance and Income Statement are a result of editing the current or previous month's balances in the Chart of Accounts.

Tabs3/Tabs3 Trust Account Software (TAS) Integration Note:  If using these integration methods, verify that the accrual accounts created in GLS are not included on these financial report comparisons.

RESOLUTION

1. Run a Data File Integrity Check and resolve any errors.
2. Print a new Trial Balance for the specified month.
3. Verify that the debits and credits are in balance on the Trial Balance. If the message "DEBITS AND CREDITS DO NOT MATCH" is shown, this must be resolved before you continue.
4. Look for asterisks (*) to the left of the account numbers on the Trial Balance. GLS compares the net activity on the Trial Balance to the balances for the same period in the Chart of Accounts, as shown in Figure 1. If the balances do not match, GLS prints an asterisk to the left of the account number, as shown in Figure 3.


Figure 1  Comparing the reports


Date: 01/31/2011 Trial Balance ----Activity---- Account # Dept Description Debit Credit 410.01 01 Fees 0.00 14045.16 410.02 01 Commissions 0.00 3250.00

Date: 01/31/2011 Detail Income Statement - Jan - Actual Income Fees 14045.16 Commissions 3250.00

Note: The "Gain/Loss posted..." figure from the bottom of the Trial Balance should also match the MTD Profit/Loss amount on the Income Statement.

Figure 2  Gain/Loss Posted to Retained Earnings


Date: 01/31/2011 Trial Balance ----Activity---- Account # Dept Description Debit Credit Totals 37377.62 37377.62 Gain (Loss) Posted to 330.00 Retained Earnings: 3349.38

Date: 01/31/2011 Detail Income Statement - Jan - Actual Total Expenses 15,120.62 _________ Profit (Loss) 3349.38



Figure 3  Trial Balance with an asterisk next to account 410.01


Date: 01/31/2011 Trial Balance Page: 1 Burns, Jensen & Powers, P.C. Department: 0 to 99 Beginning Balance Ending Balance 01/01/2011 ---- Activity ---- 01/31/2011 Account # Dept Description Debit Credit Debit Credit Debit Credit --------- ---- ----------- ----- ------ ----- ------ ----- ------ 110.01 01 Bank Account #1 0.00 10000.00 0.00 10000.00 110.02 01 Bank Account #2 0.00 5000.00 0.00 5000.00 130.01 01 Furniture & Fixtures 0.00 7500.00 0.00 7500.00 330.00 00 Retained Earnings 0.00 0.00 22500.00 22500.00 * 410.01 01 Fees 0.00 0.00 14045.16 14045.16 410.02 01 Commissions 0.00 0.00 3250.00 3250.00 410.03 01 Expense Income 0.00 0.00 575.00 575.00




5. If there is an asterisk next to any account number on the Trial Balance, preview a Trial Balance for the prior month. If the prior month's report includes asterisks to the left of one or more account numbers, preview the Trial Balance for the month prior to that. Keep working backward until you find a month that has no asterisks on the Trial Balance. Once you have identified the most recent month with no asterisks, preview a Trial Balance for the following month (i.e., the earliest month in which asterisks appear on the Trial Balance). Print a copy of the Trial Balance as well, for your records.

6. While previewing the Trial Balance for the first month in which there are asterisks on the Trial Balance, click the account number of the first "Type I" or "Type E" account that has an asterisk next to it to drill down to the account. Find the net amount of the activity from the Trial Balance and enter that amount on the Balances tab in the Chart of Accounts for the month of the report. In our example, you would enter the amount into the Debit or Credit column from the January 2011 Trial Balance in the Jan 11 field on the Chart of Accounts Balances tab, as shown in Figure 4. If both the Debit column and the Credit column on the Trial Balance have amounts other than zero, enter the difference between the two.

Note: If you do not want to go back to the first month with a discrepancy, keep in mind that if all account balances do not match for the current reporting year, the YTD Actual on the Income Statement will not match the Ending Balance on the Trial Balance or General Ledger Report. The YTD Net Profit and Loss on the Income Statement will be off as well.

Figure 4  Editing the Chart of Accounts balances

Date: 01/31/2011 Trial Balance ----Activity---- Account # Dept Description Debit Credit 410.01 01 Fees 0.00 15125.56 410.02 01 Commissions 0.00 5520.00

Note: If GLS prevents you from editing the balances found on the Balances tab, select the Allow editing of account balances check box for Client 1 in the Edit GLS Client program (Utilities | Edit GLS Client). After all editing is completed and there are no asterisks on the Trial Balance, it is recommended that this option be disabled.

Warning: Editing is not a standard bookkeeping practice and should only be done when asterisks appear to the left of account numbers on the Trial Balance.

7. Re-run the Trial Balance. Make sure that there is no asterisk to the left of the account number that you just edited.
8. Repeat steps 6 and 7 for each month until all balances are corrected for all "Type I" and "Type E" accounts. Be sure to correct the balances in the current fiscal month as well.

Note: You may not have to edit each month through the current month depending on what balances need to be changed. However, it is strongly recommended that you compare reports for all periods through the current month to verify that all months are correct.

Note: If the Trial Balance prints asterisks to the left of asset or liability account numbers, see KB Article R10984, "Balance Sheet and Trial Balance Do Not Match" for instructions on fixing those accounts.

REFERENCES

• KB Article R10984 - Balance Sheet and Trial Balance Do Not Match
• KB Article R10980 - DFIC Error 76 - Retained Earnings Mismatch

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