more-arw search

Q&A Forum

Trial Balance

When I started my accounting career I used the trial balance every month to start my reconciliation process. Through the years however I have moved away from this method and reconcile the balance sheet and P&L each month instead for month and then YTD. Using this method I am able to catch incorrect allocations or classifications done by our accounting assistant. Curious of your opinions of the different methods?

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

I am not sure if I read/interpreted your post right but my reading is that ....You are NOT addressing the problem and only changing your methods because of the issues.

I have always gone for the concept of doing it right the first time.

That means recording invoices/expenses with the right allocations the first time. That also means having invoices and expenses go through me or the Controller and having it approved and seeing/approving the classifications. The AP clerk has the duty to track the individual requesting for payment and figuring out the best way to allocate. You can also use a RFP approval process where the allocations are already indicated/defined and approved. Then and only then that an invoice and expenses can be recorded/processed. This will be difficult for a while but when you get the "monthly" expenses out of the way (I use a separate colored folder) what is left are the new/one time invoices/expenses.

Generally, I get to check a transaction TWICE. (1) the invoice/payment request/approval and (2) the check for signing (along with it's documentation).

I always tell my staff...."A question is so much simpler and cheaper (and appreciated) than tracing down or correcting an errant entry!"

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I'll modify Emerson's answer slightly.

I like to use the default aspects of the accounting system to set-up as many of the transactions (from any source) ahead of time. Triple checked, it speeds the process and eliminates error.

I agree, I would rather someone ask a question than take a stab at it, and cause more efforts later on.

As far as using the TB, in most cases in today's computerized environment you'll always be in balance. Looking at a summary TB won't catch (and never did) the db/cr to same account phenomenon, or the reversal of signs (cr where you should have a db). That still takes reconciliation/audit of the accounts.

Using defaults/templates eliminates most of the preceding errors (as does limiting who can do what...)

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

We use Sage 300 CRE (Timberline) and something I found out a couple of months ago is that it is possible to have your trial balance be out of balance.

I was posting a journal entry and the software became unresponsive before the entire entry was posted. The result was only one side of the entry posted. The general ledger was out of balance.

I was able to trick the program a second time to force it to post an out of balance journal entry by closing the application while the entry was posting. I have no clue how this happened initially. Thankfully I was able to fix it.

Timberline has many features I am not fond of, hopefully this is a bug that is able to be fixed with their year end update that will be coming soon.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

If it happens again, I'm sure your dealer has the ability to correct the database.

And, it is a bug...

James Oates
Title: Owner
Company: James D. Oates, CMA
(Owner, James D. Oates, CMA) |

I use the trial balance monthly on most clients. I run my routine monthly entries and then run the TB. It serves as a checklist for i) what accounts need to be reconciled and ii) a place for notes on adjustments etc still required. After a further block of work is done, I reprint the TB and cfwd my noted until all is done.

Derek Icenhour
Title: Controller
Company: Aeronautical Systems Inc
(Controller, Aeronautical Systems Inc) |

Christie, I'm with you on this one. I haven't used the trial balance in probably 15 years. I always just reconcile the P&L and Balance Sheet. Everything is right there.

Theresa Wilt
Title: Consultant - DCAA/ FAR/ CAS Guidance + A..
Company: T W Consulting, Inc.
LinkedIn Profile
(Consultant - DCAA/ FAR/ CAS Guidance + Accounting system setup , T W Consulting, Inc.) |

I use the Trial Balance because it has all accounts on the same page and makes a good checklist where I teach my clients what each account should reconcile to and what balances should reflect at month end, but I also use the P&L by month since I like to see all the months side by side to compare and see if anything is missing or doubled and to see what is up or down in each month to be sure it all makes sense.

Mark Matheny
Title: VP - FInancial Planning and Analysis
Company: Novolex (formerly Hilex Poly)
(VP - FInancial Planning and Analysis, Novolex (formerly Hilex Poly)) |

It is been some time since I did this type of work, but I also focused on my year to date balance sheet reconciliation first. Theory being if the balance sheet is right, the P&L is right in total. Then, began variance analysis on the P&L.

Stephen Glenn
Title: Controller
Company: Pierre Frey, Inc.
(Controller, Pierre Frey, Inc.) |

I have worked for real estate companies where the emphasis was all on the balance sheet, and other companies where the focus is on the P&L since assets' consist of little more than cash and depreciation of computers. Every company however, will have prepaids' and accruals. If you start the reconciliation on the BS, it may tie out and appear correct. Then when reviewing expenses you might find two months of an expense entered into the same month, thus requiring a reclassification to prepaids, or missing an expense requiring an accrual. So now your BS is not properly reconciled, creating duplicate work to review after the correcting entry has been made.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

I treat and use the TB as a source and begin my process there. I consider all other financial statements as just roll-ups. It does not mean that I do/will NOT check the BS or any other financial statement but I'd rather look at the source first to begin the process.

Ken Mason
Title: Controller
Company: Pascua Yaqui Tribe
LinkedIn Profile
(Controller, Pascua Yaqui Tribe) |

I agree with Emerson. It is especially important in a fund accounting environment to ensure that each fund is balanced. Shortly after I started at the Tribe, I discovered that my predecessors were using the same two funds for revenues and expenses related to certain contracts/grants and third party revenues of the same programs. That commingling made it a nightmare to prepare and reconcile the SEFA. We renumbered a swathe of general ledger accounts to segregate the third party revenue and expense activity, which left the four funds out of balance. Fortunately, AccuFund will let you turn off fund accounting so you can post entries and not have them self-balance. With proper analysis, I adjusted the interfund accounts and the trial balance now does.

Robert Sheidler
Title: Consultant
Company: Self
LinkedIn Profile
(Consultant, Self) |

I am not sure what you mean. In a sense, the P&L plus the Balance Sheet ARE the trial balance -- just summarized and regrouped a bit differently. Since the financials are usually considerably summarized, you still need to examine all the G/L accounts that roll up into each line of the P&L or Balance Sheet.

However, the format of your financials MAY make it easier to spot discrepancies -- eg an expenditure that should have gone into Prepaids instead of expense.

Robert Sheidler
Title: Consultant
Company: Self
LinkedIn Profile
(Consultant, Self) |

Back in the early days of the industrial revolution when I was studying accounting in school, the main function of the trial balance was, as the title suggests, a way to determine whether the damned books were actually in balance. That is hardly a common concern with any modern software package -- other than the hopefully rare programming glitch, of course.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

Robert, you made me smile. Since balancing is not the issue I think I have determined the method I am using it just fine. I understand what you mean. In high school I worked (volunteered) at our school store doing the books balancing the paper ledger. That was my first taste of accounting and for some odd reason, I loved doing it. I could sit for hours erasing (ha!) penciled in errors in journal entries and fixing them. There was something really rewarding at the end of the ledger when it actually balanced. That was when I really new accounting was my passion.

Sara Voight
Title: Controller
Company: Critical Signal Technologies, Inc
(Controller, Critical Signal Technologies, Inc) |

We use a report tool to put together our financials since someone decided that the straight and forward way of reporting is no fun, and while the trial balance has always been in balance - the financial reports have not. Huge sigh of relief that I figured it out before someone on the board noticed it. I run my trial balance to confirm that my other reports are reporting accurately and then I focus on the financials for my reconciliations and analyses.

John P. Hart
Title: Vice Pres - CFO
Company: Nova Pressroom Products, LLC
(Vice Pres - CFO, Nova Pressroom Products, LLC) |

Robert made me laugh too! And agree. My experience as a non-CPA business owner, entrepreneur and CFO was that the classically trained CPA always wanted a TB. But these days with ERP systems, the Balance part is not in question.

The sales folks will always concentrate on the P&L and just glance at the BS. Obviously, our job is to make sure both get full attention.

(Agent, JKS Solutions, Inc.) |

You cannot assume your IT department is a group of accountants that understand whether the system balances. This is the number one mistake in all accounting departments: Relying on assumptions as to system configuration and assuming that IT will let you know when the accounting system is not working.

Your staff need to be account owners and be responsible for understanding the content of their accounts, not just the net change, not just the ending balance. While this sounds elementary, you would be surprised how many companies assume that the errors are immaterial and ignore good reconciliation.processes.

The only time you do not have to reconcile is when you have a subledger module such as A/R or Fixed Assets that is locked to the GL with no ability to make manual adjustments to the accounts. However even then you must dump your subledger summary report and compare it to the GL account(s).

I found a PO receipt in my depreciation a few months ago from a system posting. You can't guarantee that you don't need to reconcile.

Technology helps a great deal, but it does not eliminate the need to understand the nuts and bolts, and it does not eliminate the need for accountants to review the content of the accounts.

Why would you need to reconcile the P/L ? Normally you only reconcile the Balance Sheet. Financial analysis or analytical review is used to review the P/L.

The only time i have seen out of control accounting departments is when they do not have a robust monthly reconciliation process and the reconciliations reviewed periodically by management.

If you are doing all the work yourself rather than a department of accountants, then I can understand that you would not want to reconcile, but still the work must be accountable to anyone.

If you are not comparing your recons to the TB then how do you know what adjustment is needed?

10198 views
Topics

Get Free Membership

By signing up, you will receive emails from Proformative regarding Proformative programs, events, community news and activity. You can withdraw your consent at any time. Contact Us.

Business Exchange

Browse the Business Exchange to find information, resources and peer reviews to help you select the right solution for your business.

Learn more

Contribute to Community

If you’re interested in learning more about contributing to your Proformative community, we have many ways for you to get involved. Please email content@proformative.com to learn more about becoming a speaker or contributing to the blogs/Q&A Forum.