Trial balance will show a difference in the summary and detail balances of the account “Retained earnings”. Retained earning is a system-generated account that gets its balance from two different sources:
- Cumulative Net Income
- Direct posting (through Journal Entry)
The ending balance of Retained Earnings account will be Cumulative Income + Journal Entry posting + Additional net income. Because both beginning balance and additional net income are calculated as reporting values (instead of actual Journal Entry posting), they are not caught by the Account Register Detail report. This is by design, simply because of the nature of Retained Earnings calculation.
To verify the amount of the Cumulative Net Income, follow the below steps:
- Navigate to Reports > Financial > Income Statement
- Set the following footer filters:
- From = (provide the earliest period in your Account)
- To = (provide the last period before the beginning of the new Fiscal Year)
- Subsidiary Context = (Provide subsidiary name)
- Column = Subsidiary
3. Click the Refresh button
Check the amount as per the formula Retained earnings = Cumulative Income + Journal Entry posting + Additional net income.
Result: Cumulative Net Income matches the amount of variance between the Trial Balance Summary and Account Detail reports. That means, Trial balance account balance – account detail balance = Net profit/loss of last year.