Trial Balance Numbers
The world of financial accounting can be difficult to understand. A balance sheet like the one in our example in a MS Excel format, will balance no matter what numbers you apply but random numbers will result in lower net profits or negative equity. This is where the trial balance comes in and the numbers on the trial balance come from the general ledger or journal, specific journals, and schedules.
Before you give up on financial accounting, the need to offer the sample balance sheet reconciliation is essentially a huge step in understanding where those summary totals come from. Let’s take inventory for example. Our balance sheet shows a summary total of $150,000 in current inventory. Let’s assume we had a beginning balance of $175,000 with $25,000 inventory out equals our ending balance of $150,000. But how did this end up on the balance sheet and trial balance and what if it wasn’t correctly recorded?
Click on the Sample Inventory Schedule to the left. It shows our beginning balance of inventory at $175,000 and inventory out of $25,000 so our balance sheet summary total is $150,000. But wait! Somewhere, the new inventory coming in of $10,000 was not recorded in the inventory schedule or journal. If it wasn’t recorded, it doesn’t pull to the trial balance meaning even though the company bought new inventory of $10,000, the current inventory summary total of $150,00 is off by $10,000; it should be $160,000.
On the balance sheet, because the inventory account was not reconciled correctly, instead of a $63,000 profit, we have only a $53,000 profit.
Please click on Page 2 to find out why not all balance sheets are equal and why investigation is key in balance sheet reconciliation.