My balance sheet does not balance: what now?

The short answer

Compare the trial balance and the annual accounts. Check result processing, export period, formulas and mapping; fix the cause with a supported correction.

Basis: art. 2:362 DCC

Where do you start with a balance sheet difference?

First check whether the result for the financial year has been processed in the reconciliation between trial balance and balance sheet. If the difference is exactly equal to the result, examine the result processing; that is an indication, not proof of the cause.

First compare total assets with equity plus liabilities and note the difference. If the deviation is exactly equal to the result of € 8.400, the processing of the annual profit into equity may be missing. Also make sure the opening balance sheet agrees with the adopted closing balance sheet of the prior year. A difference of € 1.000 at the start carries through differently from an error in current turnover. Also check whether the trial balance contains all accounts and whether debit and credit have not been swapped in the export.

How do you trace a wrongly booked item?

Next look at suspense and query accounts with a balance at the balance sheet date. Sort out the underlying items and classify a genuine remainder correctly; not every suspense account has to be brought to zero without reason.

A suspense account with € 2.500 on the balance sheet is an indication of a payment not yet sorted out, but not automatically the cause of an arithmetical balance sheet difference. Find the underlying entries and the related bank or invoice evidence. Then check whether VAT, depreciation, inventory and the current account with the shareholder are correctly classified. An amount can sit on the wrong balance sheet item while the total balance sheet balances. So treat two questions separately: do the totals agree, and do the items reflect the economic reality? Both are needed for usable annual accounts.

How do you prevent the error from returning next year?

Finally check whether the export contains subtotals that have been counted as ordinary accounts; then part of the amount counts twice. Writing off a difference to a residual item is never the solution: it returns in next year's comparative figures.

Record for each correction the original journal entry, the correcting entry and the reason. Then export the trial balance again and check the reconciliation with the annual accounts. If you only enter a manual residual item in the pdf, next year's opening balance will not agree with the bookkeeping. Use a four-eyes check for large amounts, for example a receivable of € 75.000 from a director. The statutory requirement of a true and fair view under art. 2:362 DCC is not met by merely an arithmetical zero difference; valuation and notes must be appropriate as well.

A systematic order for correcting

First establish the deviation exactly and compare it with the result, the VAT liability and recent correcting entries. If the difference is € 12.500, search the ledger for items of that amount or a combination of the latest entries. Check whether an exported subtotal has been included twice. Then reconcile each main group: fixed assets with the asset register, bank with statements, accounts receivable with open invoices and liabilities with supplier overviews. This also reveals classification errors that do not cause a total difference. Record the cause you find before you make a correcting entry.

After the correction, check equity and the profit for the year again. A counter-entry on an arbitrary cost account can make the balance sheet balance but distort the result. Compare the new opening position with the closing position adopted last year and explain deviations in writing. For a large or unexplained item, ask for a second review, especially when a shareholder or director is the counterparty. Keep the old and new trial balance with a short overview of changes. That way the next preparer can see why an amount differs from the earlier export and no hidden correction arises in the comparative column.

Sources

• Belastingdienst: keeping good records
• KvK: content of the annual accounts

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