Trial Balance and Detailed Equity disagree

[Eden Whitehead]

OK, it's a good chance that the problem is I just don't understand what the Trial Balance report is/what it shows.

Here's the situation (v11.1, 12/28/2011 MR, Windows XP):

For account 01-3230-399, date range January-December 2011, the Trial Balance shows Beginning Balance is 5,971.06, Period Actual (which I take to be all activity for the date range) is 300.00, and Current Balance is 6,271.06.

For the same account and the same date range, the Detail Changes in Equity report shows Beginning Balance is 5,971.06, Debit is 3,551.00, Credit is 300.00, and Current Balance is 2,720.06.

What happened in the "real world" (i.e., all posted transactions) is what the Detail Changes in Equity report shows. I would have expected the Trial Balance to show the same information (i.e., the Period Actual would have been -3,251.00) giving the Current Balance of 2,720.06, the same as in the Detail Changes in Equity report.

Is there some reason the 2 reports show different information?

Thanks again in advance for clearing up my befuddlement!
Eden

[Zaina]

The Detail changes in Equity will show you what is happening with the income and expense that close to that equity account, the 3551.00. The Trial Balance doesn't take this into consideration because it breaks out the income and expense so showing that in the equity as well would double its effect. What is common between the two reports is transactions that directly use that equity account, the 300.00.

[Eden Whitehead]

Zaina, thanks for providing the information. I'll have to mull it over a bit....

[debbieg]

Well, I was going to post this as a new question but Edna has stated it exactly as I would have.
I guess I had never compared these 2 reports before but I had to go back in time and make a correction to some money that was put in the wrong restricted fund in Dec 2011. After I made the correction, I thought I should run some reports to make sure everything was correct.

The only fund that agrees between "Detail changes in Equity" and "Trial Balance" is the one where we made a deposit and the accounting entry directly credited the equity account (3225) instead of the income account(4225). Should I go back and correct that entry to credit the income account instead?

but the bigger question is still what use is the Trial Balance report if the balances are not true?
I must be missing something.

Debbie

[Zaina]

The trial balance is true. It simply looks at the data differently than the changes in equity.

Income and expense accounts are periodic accounts. They track the ins and outs for a fiscal year. At the end of that year, they close to an equity account (some people call it a fund balance, some call them net assets but whatever you call it, we are talking about a 3000 range account). In a perfect world, you would only use the income and expense and never directly affect the equity account. In said perfect world, you would only credit the income and debit expense.

Let's set up a scenario. Let's say that income account 4225 closes to 3225 and your fiscal year is a calender year of Jan - Dec. For ease, we are going to pretend there were no expenses for this department. The beginning of the fiscal year shows that account 3225 started the year with a balance of $1000. Through that fiscal year, income is entered into 4225 and that amounted to $500. The trial balance run at the end of your year including the whole year (in this case Jan - Dec) would show 4225 with a beginning balance of 0, Period actual of $500, Curr. Balance of $500. The 3225 would show a beginning balance of $1000, Period of 0, and ending of $1000. If you then ran the report for the next fiscal year, the income would show 0, 0, 0 but the 3225 would show $1500, 0, $1500. Because the money the income had now shows that it closed to 3225 and it is 0 to start tracking the new year.

Going back now and looking at the changes in equity (again for the entirety of the fiscal year), you are only seeing the equity account, not the income and expense that affect it. So you would see beginning balance $1000, Income $500, Ending balance $1500. PowerChurch is showing you a running demonstration of how that equity is being affected by the accounts that closed to it before the end of the fiscal year. The trial balance is showing you a breakout of each account individually and not the relationship, during the fiscal year, of any income or expense that WILL close to it after your fiscal year is over.

The only fund that agrees between "Detail changes in Equity" and "Trial Balance" is the one where we made a deposit and the accounting entry directly credited the equity account (3225) instead of the income account(4225). Should I go back and correct that entry to credit the income account instead?

Should you go back and credit the income? If this was truly income then yes. Again, normally you would never want to directly affect the equity. Because that periodic income account is now not showing the whole story of money that belongs to it. If a mistake was made putting income into the wrong account, a better picture of the whole story would be to to a journal entry to debit the incorrect income and credit the 4225.

Hopefully this helps.

[debbieg]

Zaina,

that was an excellent explanation of the difference between the 2 reports. I now think I understand part of my confusion. Does the balance in the equity account (3000 level) not get updated until you close the year? If so, that would be why I'm not seeing the proper balance....I have not closed 2011 yet.
Thanks for your input.
Debbie

[Eden Whitehead]

Zaina,

that was an excellent explanation of the difference between the 2 reports. I now think I understand part of my confusion.
Debbie

Ditto what Debbie said!
Zaina, you just really cleared up a major cloudy issue for me! Thank you so much!

Eden

[Zaina]

Does the balance in the equity account (3000 level) not get updated until you close the year? If so, that would be why I'm not seeing the proper balance....I have not closed 2011 yet.

Technically, this is what happens when you close your books on a fiscal year. The periodic accounts, income and expense, have done their job for the year but you don't want to 'lose' that activity. So when you close your books, all of the income and all of the expense start the new year with zero balances because they have 'closed' their balances to the equity they are set to close too. If there is more expense (took in $500 but spent out $750), then the equity will be reduced by $250 difference. If there is more income ($500 in and $250 out), then the equity will be increased by that $250.

There are some reports in PowerChurch that will give you a look at what is going to happen, like the changes in equity. If you run an account activity report on your 3000s range in the fiscal year, you will see an entry that says [SYSTEM GENERATED]. Like the changes in equity, that is an entry added by the program to show how that equity account would be affected IF you closed your books right now and by 'right now' I mean at the moment you ran the report.