In continuing our conversation of understanding financial statements, we discuss the sub-ledger reports and how they tie in.

In our accounting and ERP system modules we find reports specific to the activities performed there. For the Sales activity, the Accounts Receivable Trial Balance and Aging Reports should tie back to the Accounts Receivable balance found on the Balance Sheet as of the same date. At the same time, Sales reports should tie back to the Revenue numbers reported on the P&L for the same time period. Likewise, the Inventory Trial Balance report should tie back to the Inventory amount found on the Balance Sheet as of the same date. Generally Inventory sales reports should provide the details of the Cost of Goods Sold figure found on the Income Statement. The Accounts Payable Trial Balance and Aging Reports should tie to the Accounts Payable amount found on the Balance Sheet. Since payable activity is recorded for each expense, we rely on the P&L to list the summary of activities.

If you find that the sub-ledger reports don’t tie, follow Shawn’s advice here.