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    ARDIE's Avatar
    ARDIE Posts: 1, Reputation: 1
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    #1

    Jan 22, 2010, 01:20 PM
    Discrepancy net income owner's equity
    What are the possible errors if my net income in the Income Statement does not balance with my owner's equity given that the owner did not put any additional investment during the cycle neither made any withdrawal?
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #2

    Jan 24, 2010, 01:16 AM

    Oh well... the bad news is that could be anything.

    I'm assuming you're meaning that the balance sheet is not coming out balancing? Otherwise, that doesn't make much sense.

    However, the first thing I'm going to address is if you mean that literally, that you think net income should equal your equity. Only the first year would that ever be true, except if this was your first year you'd presumably have an investment.

    Otherwise I will assume you mean the balance sheet doesn't balance. You'll never actually know if your net income is correct. You can only know if something didn't get included or was copied incorrectly. (That doesn't mean some other error didn't happen.)

    If, for instance, you had an entry that added to your cash and to your revenues, and you didn't post the part to the revenues, well, your revenues would be short. But you also wouldn't balance, because then what is closed to equity would also be short. That type of error would be spotted in a trial balance. If you didn't do one, then do it.

    Unfortunately there's about a million and one things that could have happened. If I had more detail, I might be able to spot a possible problem. However, all I can suggest for the moment is working your way backwards from the last thing you did and looking for errors.

    Now... one last thing. If this is for homework... and it would help a great deal if you said so cause homework is NOT real life... if you did a worksheet, check if your net income matches it. If so, then the error is something after that. If not, the error's in the income statement itself.
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