Balance Sheet Doesn't Balance

A balance sheet imbalance is always a symptom of a linking error, never a 'rounding' issue. The most common causes: (1) an item flows to the balance sheet but its cash impact was never reflected on the cash flow statement (or vice versa), so cash is wrong; (2) net income flows to retained earnings but dividends weren't subtracted, or net income hit retained earnings twice; (3) a sign error — capex entered as a positive on the cash flow statement; (4) a working capital change with the wrong sign (an increase in accounts receivable is a use of cash, not a source); (5) ending cash from the cash flow statement wasn't linked into the balance sheet cash line. Every cause traces back to one of these.

Step 1: build a check row — total assets minus (total liabilities + equity) — for every period, so you can see exactly which year breaks first. Fix the earliest year; later imbalances often cascade from it. Step 2: confirm balance sheet cash links to cash flow ending cash, and retained earnings rolls forward correctly (beginning RE + net income − dividends). Step 3: if the imbalance equals a recognizable number (e.g., it equals capex, or twice net income, or the dividend amount), that points straight to the culprit. Step 4: check every cash flow line has its mirror on the balance sheet and that signs are correct. Step 5: confirm no item is on the balance sheet without a corresponding cash flow (e.g., a PP&E write-up or deferred tax).

Experienced modelers diagnose by the size of the imbalance. If the imbalance equals net income, retained earnings probably wasn't linked or net income was double-counted. If it equals D&A, the add-back on the cash flow statement or the PP&E roll-forward is broken. If it equals capex, capex hit PP&E but not cash flow. If it equals the change in a working capital account, that line's sign or link is wrong. If it equals the dividend, dividends were paid in cash but not removed from retained earnings (or vice versa). The imbalance amount itself is the biggest clue — read it before clicking through cells.