If assets and liabilities don’t match in a balance sheet, it means there’s an error in the accounts that needs to be identified and corrected. The balance sheet in an annual report must always follow the principle that assets equal liabilities. This is known as the “balance principle,” and it’s a fundamental part of accounting.
There are several possible reasons why assets and liabilities might not match:
Errors in accounting entries: This can include bookkeeping mistakes such as missing entries or incorrect amounts. It’s important to review the accounts carefully to find and fix these issues.
Unidentified transactions: Some transactions or entries may have been overlooked or forgotten, which can lead to an imbalance.
Missing documentation: If documentation is missing for certain transactions or entries, it may be difficult to determine the exact financial value.
Changes in valuation methods: If the organization has changed how it values assets or liabilities, it can affect the balance and may require adjustments.
What should you do?
When an imbalance is discovered, it’s important to investigate the cause and correct the error as soon as possible. This may involve reviewing all transactions and entries in the accounts, and working with an accountant or professional bookkeeper to identify and resolve the issue.
Consequences of imbalance
Balance sheet errors can have serious consequences, as they may lead to inaccurate financial information—something that can affect decision-making and trust in the organization’s financial reporting. That’s why it’s essential to ensure the balance sheet is always balanced as a basic best practice in accounting.