Balance Sheet Issues: Help Needed!
Hello, fellow business owners! I’m a new company owner and I’ve hit a snag while trying to balance my balance sheet. I have an erroneous discrepancy of £2,526.90 that I can’t seem to resolve. My current figures show total assets of £2,761.68 and total liabilities of £2,813.48, but my equity calculation doesn’t seem right.
Here are the figures I’m working with:
Income Statement:
- Gross Revenue: £234.78
- Gross Costs: £1,640.21
- Operating Costs: £1,183.27
- Net Profit/Loss: -£2,588.70
Balance Sheet:
Assets:
– Cash: £234.78 (from sales revenue)
– Inventories: £1,502.78 (unsold products)
– Prepayments: £0.00
– PC & Peripherals: £1,024.12 (Company laptop)
– Total Assets: £2,761.68
Liabilities:
– Director’s Loan: £2,813.48 (This is what I owe to myself for covering gross and operating costs via my personal card)
– Total Liabilities: £2,813.48
Equity:
– Retained Earnings: -£2,588.70 (matches my net profit/loss)
– Share Capital: £10.00
– Total Equity: -£2,578.70
The Problem:
- The sum of my Total Liabilities + Equity = £234.78, which is significantly lower than my total assets.
- Ideally, the equity should be -£51.80 for the balance sheet to balance, but my retained earnings appear to be overstated by £2,526.90.
- Since my retained earnings are in line with my net loss, I’m puzzled about the source of this extra discrepancy.
I would greatly appreciate any insights or advice on what might be going wrong. Is it possible that something is being double-counted or miscalculated?
Thanks in advance for your help! I’m feeling a bit lost here.
One response
It looks like you’re experiencing a common issue with balancing your balance sheet, and it can often be traced back to a few possible areas. Here are a few insights and suggestions to help you troubleshoot and hopefully resolve the discrepancy:
The fundamental Accounting equation states that Assets = Liabilities + Equity. In your case:
This means:
– Total Liabilities + Equity = £2,813.48 – £2,578.70 = £234.78
– Your total assets should equal £234.78, but instead, you have £2,761.68. This indicates a problem.
Check Retained Earnings Calculation:
From your income statement, the net loss of -£2,588.70 should indeed reflect in the retained earnings, which you’re correctly presenting. Make sure there are no previous retained earnings being added or subtracted incorrectly.
Review Liabilities:
Your director’s loan seems to be a significant amount that needs careful review. Since it’s not an actual liability until it’s due for repayment, consider whether it’s appropriately calculated and whether any expenses have been categorized incorrectly.
Check for Double Counting:
It sounds like your expenses might be affecting both your income statement and balance sheet. Since the loan covers personal expenses, make sure they’re not recorded both as costs and included in assets.
Equity Calculations:
To balance, your equity should actually be equal to total assets minus total liabilities. You seem to expect equity of -£51.80, so let’s calculate that:
[
£2,578.70 + £2,526.90 = – £51.80
]
Your equity seems to be overstated by £2,526.90, suggesting that one of your liabilities, costs, or assets might have been inaccurately recorded.
Verify the Cash Balance:
The cash figure should only reflect cash on hand. If you’ve recorded gross revenue but have outstanding liabilities, ensure you’re not misrepresenting available cash.
Review Inventory Valuation:
Ensure that the inventory valuation is accurate and that it reflects only what you still have in stock.
Consider Accounting Software or Expert Assistance:
It can be very helpful to use Accounting Software or consult with a professional accountant. They can provide insights that you might overlook, especially being a new business owner.
Going through these steps systematically should help you identify where the discrepancy lies. It may take a bit of time to sort through your figures, but with patience and careful review, you’ll get to the bottom of it. Good luck!