A balance sheet is a financial statement that represents your company’s assets and liabilities. The assets and liabilities of your company should be equal to each other for your balance sheet to tally. A mistake in the balance sheet will render it unbalanced. As a result, it will make the decision-making of your company difficult which may affect your profitability as well. So, how do you fix an unbalanced balance sheet? Before you figure out the answer to this question, it is important to know why you have an unbalanced balance sheet. Here are a few reasons why you may have an unbalanced balance sheet.
1. Data Damage or Misplaced Data
If you use Quickbooks, data damage is a possibility. Files being damaged can be caused by sudden discrepancies in reports. For example, if you pulled up a balance sheet for “all dates” while everything is balanced, “this fiscal year” will have an out-of-balance report which is most likely to be transaction damage. Re-sorting the list and rebuilding the data is a way to fix this problem.
Also, data can be misplaced on account of human error. To avoid this, you need to double-check by conducting the audit for an accurate balance sheet. Conducting an audit will help you identify any manipulations in the financial records as well.
2. Incorrectly Entered Transactions
This is a common human error and every owner should know that such mistakes can occur. Transactions can either be entered wrongly such as the incorrect numbers, ignoring the entry, only entering either the debit or the credit side of the entry, and more. To fix such issues, you need to cross-check your financial records and train your employees to avoid such errors.
3. Dealing in Different Currencies
If you export to other countries, you will be dealing with different currencies. In this case, it will be difficult for you to maintain one single book for all the transactions. Fluctuations in exchange rates may lead to difficulty in determining which rates should be entered in the books. Hence, if you enter the incorrect rates, you may end up with an incorrect balance sheet.
4. Change in Inventory
Change in inventory affects the cash flow statement as last month’s inventory needs to be subtracted with the inventory of the current month. This amount then needs to be reduced from the cash balance. Calculating this amount can be tricky which can affect your balance sheet. Thus, taking the help of experienced accountants like the team at our Edmonton accounting firm will help you prevent any mistakes relating to inventory accounting.
5. Equity Calculations
The total worth of the owner’s equity should be checked. An increase in assets leads to an increase in equity and vice versa. The balance sheet will not be balanced if the equity does not show the difference between assets and liabilities. Therefore, errors in calculating equity can be another reason why your balance sheet has not tallied.
Contact ATS Accounting & Tax Edmonton for Assistance
Now that you are aware of why your balance sheet has not tallied, make sure you keep in mind these points the next time you enter the transaction details. So, if you want to fix an unbalanced balance sheet or want more information on this topic, then contact ATS Accounting and Tax Edmonton online to schedule your free 15-minute consultation or call us at 780-484-4006.
