Income Statement and Trial Balance Do Not Match

Last reviewed: 12/04/2003
Article ID: R10381

The information in this article applies to:

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.

On the Trial Balance, the Beginning Balance is retrieved from the Balances tab in the Chart of Accounts. If the account is an asset or liability account, the beginning balance is derived from the prior month's ending balance (i.e., the May ending balance is the June beginning balance). If the account is an income or expense account, the beginning balance is calculated by adding the activity for each month of the fiscal year prior to the Beginning Calendar Month specified when the Trial Balance was run. To calculate the Ending Balance for all accounts, except the Retained Earnings (Type "R") account, the report uses the Beginning Balance plus or minus the actual journal entries ("Activity") for the specified period that the report is run. 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).

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 2004 report the Jan 04 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

Note: The Trial Balance and General Ledger can be used interchangeably when comparing balances to the Income Statement. However, it is easier to use the Trial Balance because it is a summary report.

  1. Print a new Trial Balance and Income Statement for the specified month.
  2. 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. 

  3. For each account, compare the difference between the debit and credit amounts in the Activity Column on the Trial Balance to the Actual MTD figure on the Income Statement for any given month. These figures should match. Alternately, you can compare the Net Change amount on a General Ledger Report to the Actual MTD figure on the Income Statement for any given month for each account. 

     Date: 12/31/2003             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: 12/31/2003   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.

     Date: 12/31/2003             Trial Balance
                                         
                                           ----Activity---- 

 Account #  Dept    Description            Debit      Credit 
    
                  Totals                37377.62    37377.62

    Gain (Loss) Posted to 330.00 Retained Earnings:  3349.38
    		   
     Date: 12/31/2003   Detail Income Statement

                                  - Jan -
                                   Actual

   Total Expenses                15,120.62
                                 _________
   Profit (Loss)                   3349.38

  4. If the balances do not match, reprint the same reports for the prior month. If necessary, keep working back until you find a month that has the same balances for all accounts. 

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.

  1. When you find a month when Trial Balance and an Income Statement account balances match, print the following month's Income Statement and Trial Balance (this should be the first month where the account balances don't match). 
  2. Take the difference between the debit and credit amounts in the Activity Column on the Trial Balance or use the Net Change amount on the General Ledger Report for each account. Enter this amount on the Balances tab in the Chart of Accounts for the month of the reports (i.e., enter the net activity for January 2004 in the "Jan 04" field on the Chart of Accounts Balances tab).  Do this for each account that does not balance. 
 Date: 01/31/2004              Trial Balance
                                        
                                        ----Activity----

 Account #  Dept    Description        Debit      Credit 
    410.01   01   Fees                  0.00    15125.56
    410.02   01   Commissions           0.00     5520.00
Balances tab

Warning: Editing is not a standard bookkeeping practice and should only be done when a discrepancy exists between the Trial Balance and the Income Statement. 

  1. Rerun the reports. Make sure that the MTD Balance on the Income Statement matches the month's Net Activity from the Trial Balance for all accounts.  
  2. Repeat steps 5 through 7 for each account until all balances are corrected. Be sure to correct the balances in the current reporting 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.

REFERENCES

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