The Balance Sheet - Part 3 - Fixing Imbalances
FINDING THE PROBLEMATIC TRANSACTIONS THAT CAUSE IMBALANCES IS EASY 1) AS LONG AS THE FILE WAS SETUP PROPERLY TO START WITH AND 2) AT SOME PRIOR POINT IN TIME PRIOR TO THE TIME WITH AN ERROR THE BALANCE SHEET CAN SHOW A PROPER ZERO BALANCE.
In our bookkeeping software, it says that on January 1 we had 100 in our bank. On 1/5 a $45 deposit transpired. On 1/22 a $20 atm withdrawl transpired.
Our Balance on 1/22 through 1/31 would be $125.
We get our statement and it says our month end balance is $135 not $125.
With only two transactions this is easy to find. Imagine you had 100 or 200 transactions.
If I set the Balance Sheet start date to 1/1 and the end date to 1/2, and l get a proper balance at $100. I know my data through 1/2 is accurate and I can start steping by day through my data until the balance sheet falls out of balance.
I could step through 1 day at a time, but it's more typically to jump in chunks of days.
If I then change the date to 1/8 to see if the error was between 1/2 and 1/8 I would find my books reading $145, but my running balance with my bank was $155 and thus I'd know to look at transactions between 1/2 and 1/8.
I can change the date to 1/4 and realize I was still good on 1/4 and then to 1/5 and I'd realize the error was on 1/5.
From there, I can go to the General Ledger and look at 1/5 transactions and locate the error. From there I can go to the journal where the error exists and fix the error.
In the example I just gave, this gross recording error would have actually been picked up with statement reconciliation. It would never had made it to the point I had to find it with the balance sheet but the gist is identical. And in fact I implied I was checking the running balance against a paper statement which is not how the process really works but it was an easy way to give an example of stepping through the dates.
One type of common errant transaction that is picked up by our Balance Sheet is a mis-categorization of an expense as a transfer to another asset or liability account or visa versa.
From here, it's best to play with a template with Demo Data in it for further understanding.
Focus on a narrow date range. Make some errant journal changes and watch how those create errors in the Statement Reconciliation Worksheet and/or in the Balance Sheet.
I have spent 20 years doing books. I've never lost a penny that required an adjustment. Before this spreadsheet system I had to work a lot harder in database systems to find the errors and i always had to be on the lookout for corrupt data. Spreadsheets remove the corrupt data component that is an inherent possibility in Database systems making this a lot more like a dream come true.