Balancing a balance sheet in Turbo Tax Business Incorporated

You may see a warning in your auditor regarding your balance sheets such as:

"Total assets do not equal total liabilities plus total shareholder equity. Please review Schedule 100 and/or 125. If this error is not corrected, the CRA will delay the processing of the T2 return."

In this situation, a calculation will have to be made for the amounts that differ by adding or removing an amount that is causing the imbalance in either the Assets column, or the Retained Earnings column. Reviewing recorded business activity may show insight to what is causing the imbalance.

Note: Our experts can't assist with balancing a balance sheet, as that is tax specific. If you require more information about the use of GIFI codes, please refer to the CRA’s GIFI code list, which can be used to search for key terms. If you require assistance with balancing your balance sheet, please contact the CRA’s Business Enquiries line.

The most common issues for the balance sheet not balancing are:

• The Retained Earnings/Deficit Start (line 3660) isnot entered
• It's off by a small amount because accounts are rounded to the nearest dollar
• Review the corporation's Trial Balance for missing accounts

Understanding balance sheets

The assets on the balance sheet consist of what a company owns or will receive in the future in which they are measured. Liabilities are what a company owes, such as taxes, payables, salaries, and debt. The shareholders' equity section displays the company’s retained earnings and the capital that has been contributed by shareholders. For the balance sheet to balance, total assets should equal the total of liabilities and shareholders' equity.

The balance between assets, aiability, and equity makes sense when applied to a more straightforward example, such as buying a car for a sum of money. In such a case, you might use the amount of the loan (debt), plus cash (equity) to purchase it. Your assets are worth a certain total, while your debt is another dollar amount and equity the remaining amount. In this example, assets equal debt plus equity.

Assets

Assets are the first of 4 major categories on the balance sheet. Current assets represent the value of all assets that can reasonably expect to be converted into cash within 1 year and are used to fund ongoing operations and pay current expenses. Some examples of current assets include:

• Cash and cash equivalents
• Accounts receivable
• Prepaid expenses
• Inventory
• Long Term or Fixed Assets (Property, Plant, and Equipment)
• Loans to Shareholders
• Furniture and Fixtures
• Accumulated Amortization of Furniture and Fixtures - This will be a negative number

Liabilities

Current liabilities are short-term liabilities that are due within 1 year and include: 

• Accounts payable(s) are a short-term debt owed to suppliers.
• Accrued expenses are expenses that have yet to be paid, but have a high probability of being paid.

Example of non-current liabilities:

• A loan from a bank.
• A loan from a shareholder

Shareholders' Equity

Shareholders' equity is the net of a company's total assets and it’s total liabilities. Shareholders' equity represents the net worth of a company and helps to determine its financial stability. This is the amount of money that would be left over if the company paid off all liabilities such as debt in the event of its liquidation.

Retained earnings

Retained earnings are money held by a company to either reinvest in the business or pay down debt. Retained earnings are also earnings that have not been paid to shareholders via dividends.