The Balance Nobody Can Explain
Someone points at a balance sheet number and asks what's in it, and nobody knows. It's rarely fraud or carelessness. It's an account that never resets and was never reconciled.
It usually comes up the same way. A lender, a new CPA, or a buyer points at a number on the balance sheet and asks what’s in it. Nobody knows.
When I get a file like that, I don’t start by deciding what the balance should be. I start by asking how it got there.
Why the balance sheet holds on to everything
The income statement resets every year. The balance sheet doesn’t. Cash, receivables, payables, loans, and equity carry forward, and whatever goes into them stays until something specific takes it out.
So an error from four years ago isn’t history. It’s still in this year’s total, blended in for so long that nobody thinks to question it.
Where I look first
- Undeposited funds. Payments recorded but never matched to a real deposit.
- Clearing and suspense accounts. Parking spots nobody came back to.
- Payroll liabilities. What was accrued and what was paid drift apart a little every period.
- Loan balances. Still at the original amount because every payment went to expense.
- Opening balance equity. A setup account that should have been cleared and wasn’t.
A liability with a debit balance always gets my attention. It usually means payments were recorded but the obligation behind them never was.
What fixes it
Not an adjusting entry that forces the number. That just moves the problem into whatever account took the other side, and now two accounts are wrong.
What fixes it is rebuilding the account’s activity until the balance is made of items I can identify and support. You end up with a number and the explanation behind it, which is what the lender or buyer was really asking for.