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Beginning Retained Earnings - is your Balance Sheet Out of Balance again?

  • Cris Heceta, Consultant
  • 3.28.19

I have had this discussion (and argument) with other Consultants on what to do about Beginning Retained Earnings (RE BegBal) - at the initiation of a consolidation application build and moving forward. This comes from the treatment of RE BegBal in whatever consolidation tool you are using. I am now writing it down and spreading it to anyone who will listen to try to make at least one thing in our lives simpler.

The two options are:

Option 1:
  • Load RE BegBal from source systems into the RE BegBal in the first time period of the consolidation tool.
  • After that point, RE BegBal is ignored from whatever periodic load is utilized, with a formula of some sort pulling forward the prior year-end retained earnings into the current year.
  • Basically, RE BegBal is an input account in the first period and calculated going forward.
Option 2:
  • Always load RE BegBal from source systems into a statistical account outside of the trial balance accounts.
  • Use a formula to pull the balance from the statistical account into the body of the trial balance to initiate the consolidation system.
  • Going forward from the system initialization, use a formula to pull forward the prior year-end retained earnings.
  • Basically, RE BegBal is always input into the consolidation system and the calculation of RE BegBal in the balance sheet is always a calculation.
Overview

From a reporting perspective, RE BegBal shouldn't be changing, but we all know that is not always the case or a reality. Changes can occur a lot of times because of audit adjustments or a significant event in the business.

What happens when you put in a consolidation tool? And there are several tools out there to be sure. My preferred option (if you haven't already noticed) is Option 2 from above. This is a very simple process that can be applied to any consolidation tool.

  • 1. It allows users and the business to begin the analysis when a trial balance data load is out of balance.
  • 2. This process simplifies validations as well as mapping!
General Thought Process

General Thought Process

Conclusions

As I noted earlier, from a reporting perspective, RE BegBal shouldn't be changing but has been known to do just that.

  • RE BegBal needs to come from somewhere in order to kick-off the trial balance of a consolidation system.
  • My issue is that if a source RE BegBal value is input into the RE BegBal account of a new consolidation system and is then allowed to roll (calculate) going forward, any mapping of the original account needs to be ignored going forward. In almost every instance I encountered, historical data is loaded and reloaded many times, so mapping needs to be modified back and forth. How many of you remember to do that every time?
  • If a source RE BegBal value is always loaded into a statistical account, the consolidation system RE BegBal can always be calculated:
    • To initiate the balance sheet using the statistical account
    • To pull the correct balance going forward as well.
  • Using a statistical account allows for:
    • Stable mapping of RE BegBal
    • Maintenance of RE BegBal as a calculated account
    • Ability to always compare Consolidation System versus Source System RE BegBal. It can even be part of your system's data submission validation process.
    • Why is this important? Besides any new mapping errors, the difference between the Beginning Retained Earnings values is often the source of an imported trial balance being out of balance.

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