SUMMARY: This tech note is a guide on how to check that the financials are in balance and how to correct an out of balance if one exists. Automated tools are available in C&P to expedite most of this process.
Steps for Finding and Correcting Out of Balance Financials
Finding an Out of Balance: Typically, a C&P user first discovers the financials are out of balance when printing a balance sheet and noticing at the bottom of this report an out of balance amount. Another way is to print a monthly or yearly trial balance. If an out of balance exists, there will be a nonzero amount on the Total Assets, Liabilities and Equity row of this report. Once an out of balance is discovered on one of these financial reports, then the following steps should be taken to fix the out of balance.
Step 1 - Run the Out of Balance Checker and Fix any Journal Entries on this Report
The Out of Balance Checker , located in Accounting > General Ledger > Edit > G/L Tools > Auditor , lists any journal entries where the total debits and credits do not equal, as well as any journal entries where the total debits and credits equal but are out of balance in multiple periods (known as a split period out of balance journal entry).
TIP: If the out of balance on the Balance Sheet or Trial Balance doesn’t match the out of balance on the Out of Balance Checker, there is a reason for this that will be addressed in Steps 2 - 4 below.
In the general ledger, find each reference number, then click the Verify button at the top of the window. This tool cross checks the journal entry with it’s source record (A/R Invoice, A/P Invoice, Client Payment, or Check) and makes the correcting entries to bring them into agreement. Proof the entries made by the Verify tool for accuracy, then post them.
The Verify tool will fix both kinds of out of balance journal entries, those where the debits don’t equal the credits, as well as split period out of balance journal entries where the debits equal the credits, but are out of balance by the opposite amounts in multiple periods.
TIP: When reviewing a journal entry in the general ledger, click on each line to see its period listed above. C&P allows multiple accounting periods in a single journal entry.
TIP: If after proofing the unposted entries made by the Verify tool some are determined to be incorrect entries, then all the unposted entries can be deleted by clicking the Delete button while viewing this journal entry. It will only delete the newly added unposted entries. It will NOT delete the entire journal entry. Please call the C&P helpdesk for assistance if the Verify tool did not add the appropriate correcting entries.
After clicking Verify, if C&P says “the source of the journal entry is out of balance”, this means that the source A/R Invoice, A/P Invoice, Client Payment, or Check are out of balance themselves . The source record must be in balance for the Verify tool to work, so fixing the source record is the next step. The source record can be identified by its reference number. Each reference number begins with a prefix which identifies what type of entry it is.
Reference numbers beginning with JE# are journal entries added manually in the General Ledger. AR# indicates entries made from the posting of an Account Receivable invoice. AP# indicates entries made from the posting of an Accounts Payable invoice. PMT# indicates entries made from the posting of a client payment or a deposit. CK# indicates entries made from the posting of a check or vendor credit.
Make sure that the source record has the correct period. Then, manually check that the total of the record’s line items equals the total amount of the record. For A/P invoices, checks, and client payments, the total of the line items (i.e., cost lines, payment lines, or check item lines) should equal the total amount in the header or top portion of the record. For A/R invoices, the total of the billing lines should equal the total of the invoice (before taxes) at the bottom of the record.
If the out of balance is a result of an out of balance with the source record, then you will need to unpost it, correct it, then repost the record. When unposting it, the source record will normally unpost out of balance the opposite way that it originally posted out of balance. This should bring the entire journal entry back into balance by netting it to zero . After fixing and reposting the source record, find it in the general ledger (it should come up first now), and proof it for accuracy. The best way to do this is to once again click the Verify button. If all is well, C&P will return a message that no journal entries were added.
TIP: If the source record has no period, then call the Clients & Profits helpdesk for assistance.
If an out of balance entry has a reference number starting with JE#, then the Verify tool can’t be used to correct it. This journal entry was added directly to the general ledger and does not have a source record to which it can be compared. To correct these out of balance journal entries use the Add Adjusting JE feature. First, determine what correcting entries need to be made. Each will include a reference number, date, period, account number, and debit or credit amount.
Next go to the Add Adjusting JE window, under Accounting > General Ledger > Edit > G/L Tools > Add Adjusting JE, and enter the information into the appropriate fields. Make sure that the JE reference number is exactly the same as the out of balance journal entry (it will show up as an unposted entry at the bottom of this reference number when saved). This will ensure that the correcting entries will be added to the out of balance entry, bringing it back into balance and removing it from the Out of Balance Checker report.
Make a separate adjusting JE for each G/L account that needs adjustment in order to fix the entry. More than one entry may be necessary if more than one G/L account needs adjustment or if more than one period is out of balance in this reference number. Then once all necessary adjusting JEs have been added to this reference number, proof it to make sure that it is now properly in balance. Not only should the debits now equal the credits, but each account should “net out” correctly in each period. Finally, post the adjusting JEs by using the post "All Unposted JEs" option.
TIP: Another option for correcting an out of balance JE# entry is to unpost,delete, and readd it. Deleting is a necessary step because it will create a set of unposted entries that need to be removed. A JE# journal entry can be unposted only once, after this, manual journal entries must be used to fix it.
Last, if the BEG BALN reference number is on the out of balance checker, this means an error occurred closing the year. This reference number needs to be fixed manually. Open the pre-close database backup and run the period 12 trial balance. Compare the ending balance for each account to the entry made for that account in the BEG BALN journal entry. Add one sided entries to this reference number in the beginning balance period to adjust any accounts that need correcting.
TIP: The retained earnings account will be increased or decreased based on the amount of profit or loss through period 12. Troubleshoot this account balance first, since it’s often the cause of the problem.
Now that all of the entries listed on the Out of Balance Checker report have been corrected, run the balance sheet or trial balance again to see if they are in balance. If they are not in balance then proceed to the next step.
Step 2 - Run the Account Totals Checker and Verify/Recover any Accounts on this Report
The Account Totals Checker report, also located in the Auditor window, compares the totals of each G/L account on the financials (balance sheet/trial balance/income statement) to the journal entries for each account in the general ledger. Any accounts listed on this report have a variance between its account balance and the total debits and credits for that account.
A verify/recover of these accounts will reset the account total to match the total of the debits and credits for that account. To do this, open the Verify/Recover window under Setup > Utilities > Verify/Recover and select "G/L Account Balances" from the drop down menu. Enter the account G/L number in the "Select G/L Number" selection box. Always run the verify/recover for "All Periods”.
TIP: If there are many accounts listed on the Account Totals Checker, then it may save time to leave the "Select G/L Number" set to "ALL". "ALL" indicates that every G/L account balance will be retotaled. Make sure no one is posting or unposting into the G/L when running this verify/recover.
Now that the G/L accounts listed on the Account Totals Checker report have been fixed, run the balance sheet or trial balance again to see if they are in balance. If they are still out of balance, then proceed to the next step.
Step 3 - Look for Income Statement Accounts Activity in the Beginning Balance Period and Move it to the Correct Period
There should never be a beginning balance for the income statement accounts. Only a system error can cause this to happen, since C&P does not allow a user to add income statement journal entries into the beginning balance period. Because of this, C&P does not include beginning balances for these accounts when calculating the Balance Sheet and Trial Balance reports since it’s not expecting such activity in this period. Therefore, if there is an amount for income statement accounts in the beginning balance period, the balance sheet and trial balance will print out of balance.
To check the beginning balances for income statement accounts run the Trial Balance report, under Snapshots > Financials > Trial Balance, for period 1. The beginning column of this report represents the beginning balances for the accounting year. The income statement accounts will be listed after "Total Assets, Liabilities and Equity." Check to see if there is an amount in any of these accounts in the beginning balance column.
If there is an income statement account with a beginning balance, then find and fix the source journal entries creating this beginning balance. To find them, run an Account History report. To run this report, highlight the account in the Setup > Chart of Accounts window and click on the View History link. The Account History report will list the entire account history by period for the account.
The beginning balance entries for the account will be at the top of the report and will list the JE reference numbers for any entries posted to the beginning balance period. These are the entries that will need to be corrected. Reference numbers beginning with AR#, AP#, CK# or PMT# indicate that they came from a source record in Accounts Receivable, Accounts Payable, Checkbook or Client Payments. First go to the source record and confirm that there is a period.
If the source record has no period, then call the Clients & Profits helpdesk for assistance to correct the problem. If the source record has a period, then find the reference number in the general ledger and use the Verify JE tool to fix it. This tool will make the correcting entries needed to reverse the entry out of the beginning balance period and into the period indicated on the source record. Proof and post the correcting JEs by posting "All Unposted JEs."
If the reference number listed begins with JE# then there is no source record. In this case, manually reverse the amount out of the beginning balance period using the Add Adjusting JE feature. Add one entry to reverse the amount in the beginning balance entry for this account, and a second entry to put the amount into the correct period for this account. Once the adjusting entries have been added and proofed, post them by posting "All Unposted JEs."
Print the Balance Sheet or Trial Balance again and they should now be in balance.