Balance Sheet – Not Matching Profit & Loss

This article hopes to explain, and provide guidance as to amend, the main cause of the “P&L Account” as reported by the Balance Sheet not matching the actual Profit & Loss Report run for the same period.

How the Balance Sheet Works

For a date range of 01/01/0001 up until the Date the Balance Sheet is specified to run, the values of all “Fixed Asset” and “Current Asset/ Liability” Nominal Codes are compiled and listed under their respective sections, with the “Capital & Reserves” section including the sum of all Profit & Loss Codes consolidated into the single entry of “P&L Account”, as well as individually listing any explicitly classed “Capital & Reserves” Nominal Code such as “Retained Profits”.

How the Profit & Loss Report works

The values of “Turnover”, “Cost of Sale”, and “Expenses” Nominal Codes compiled for the Date Range you specify then listed under their respective sections. The Net Profit is calculated as follows:
Turnover – (Cost of Sales + Expenses)

The Profit & Loss (and the Monthly Profit & Loss), will not consider the values declared in any Journals that have been specified to “Exclude from P&L”, this specification is what allows your Trial Balance and Balance Sheet to report accurately for your new accounting period(s).

The Cause

If the Year End Process has been performed this will generate a Journal that reallocates the sum of all Profit & Loss Nominal Codes as of the date for the Year End, to a Retained Profit Code. As stated previously this Journal is not considered in the explicit Profit & Loss Report so the Nominal Codes appear to maintain their full values.

Due to the above, this naturally means if you then retrospectively make delete, add, or otherwise edit Transactions assigned to the Profit & Loss Codes they will not be included in the above Journal and thus will contribute as a discrepancy between the Balance Sheets evaluation of the “P&L Account” that does consider the Journal, and what the Profit & Loss report now shows.

The only means to rectify this matter, is to either:

  1. Manually change the Journal as to reflect these retrospective changes by amending the effected P&L Nominal Code(s) and Retained Profits Code
  2. Or, the cleaner method, delete the Year End Journal, and re-run the Year End Process

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