Reconciling the Trial Balance to the Profit and Loss and Balance Sheet Reports

How do I reconcile my Trial Balance report to the Profit and Loss and Balance Sheet reports?

This process should become a habit, ensuring that all figures balance across the reports, and that the P & L reflects the movement in the Balance Sheet between two dates. Therefore you should expect to see the P & L result reported in the Balance Sheet as Current Year Profit and Loss.

NOTE: It is important to keep date selection for all three reports consistent. This example uses 30 June 2010.

Step 1 -Trial Balance Report
 

• Click on the Reports > Accounting Detail > Trial balance 

• Adjust any default settings and click on the Print button

• The Net Profit figure at the bottom of the Trial Balance report is the number you should expect to see on the P & L report. 
• If the trial balance is zero, continue on to create the P & L Report, as in Step 2. If the trial balance does not balance to zero, do not continue until you have completed the next 3 items.
• Click on the Utilities > Transaction Check menu option.
• Correct any errors that are reported and run the transaction check again.
• Repeat this process until the transaction check reports no errors.

Step 2 - Profit and Loss (P & L) report

• Click on the Reports > Management Financials menu option.

• Select Profit and Loss and ensure you have selected the highlighted options.

• Click on the Print button.
• You should now be presented with the Profit and Loss report with the Net Profit result being consistent as the Trial Balance.

Step 3 - Profit Distribution

• Click on the Chart tool bar option
• Click on the Equity tab
• Check that you have a chart item labelled, 930 – Current Year profit and Loss, (see below)
• If yes, click on the Edit button to check details, as below.
• If no, click on the Add button and create the Equity account, as below.

• Profit Distribution is a simple method of automatically allocating year end profit or loss to owners equity accounts in any nominated proportion. Distributions can be on a percentage basis (e.g. partnerships) and/or a fixed dollar entitlement (e.g. partner salaries, trust distibutions, etc.)

• Set up the profit distribution.
  • Click on the Setup > Profit Distributions menu option. You should see the Profit Distribution window shown below (or similar)
  • Click on the Allocate Profit/Loss button.

• If you have not set up your Profit Distribution:
  • Click on the down arrow   in the Equity A/C column and select your owners equity account. e.g. 930 Current Year Profit and Loss. 
  • In the Profit % column, enter your distribution percentage allocation. e.g. 100%. (Fixed dollar entitlements are entered in the Profit $ column.)
  • Note: The program will distribute the fixed dollar amounts first and then any % entitlements after that.
• Click on the Allocate Profit/Loss button.

• Click on the Close button to exit.

Step 4 - Balance Sheet report

• Click on Reports > Management Financials menu option
• Select the Net Worth report
• Ensure you have selected the highlighted options.
• Click on the Allocate Profit/Loss button.
• Click on the Print button.

Summary: (See below for an example of the reconciliation outcomes you should be presented with.) 

• The Trial Balance result - $1,077,495.87.
• Profit and Loss Report -  $1,077,496.
• Profit Distribution - $1,077,495.86.
• Current Year Profit and Loss as per the Balance Sheet (Net Worth Report) - $1,077,496.