Seller earnings do not match bank deposits: what to investigate

Align the period and the business

Check that both reports cover the same dates, currency and legal entity. Identify every account and payment processor used by the business. A report for one bank account cannot explain cash collected through another account or still held by a processor.

Confirm how the accounts recognize revenue. Under accrual accounting, a recorded sale may be collected in a later period. Customer deposits may arrive before the related revenue is recognized. Ask the seller's accountant to explain the actual policy and any differences from the tax records.

Explain the components of the difference

An illustrative reconciliation

Fictional example, all amounts in USD for one month and the same legal entity: deposits across all of the entity's bank accounts total $300,000. Records identify $50,000 of loan proceeds and a $20,000 transfer between the business's own bank accounts. Removing those non-sales deposits leaves $230,000. Assume the remainder consists entirely of customer receipts for the period, with no additional cash collections or unsettled processor balances. This is net customer receipts before restoring the processing fees withheld from settlements.

Merchant statements show that $5,000 of processing fees were deducted from those same settlements before the money reached the bank. Adding back those fees gives $235,000 of customer collections before processing fees. Do not add them again if the starting figure already shows gross collections. The fees remain an expense when calculating profit.

The opening customer receivables ledger is $40,000 and the closing ledger is $55,000, an increase of $15,000. If that change consists only of sales recorded as revenue and customer collections, revenue is $235,000 plus $15,000, or $250,000. The cross-check is $40,000 opening receivables plus $250,000 of revenue less $235,000 of collections equals $55,000 closing receivables.

This simplified bridge assumes no sales taxes, customer advances, unbilled revenue, refunds, credits, write-offs, foreign-exchange movements or other balance changes. In a real review, verify the opening and closing ledgers and each adjustment. Do not invent a receivables movement to fill a gap. A reconciled revenue figure still does not establish profit or collectible cash.

Keep evidence beside each explanation

For each month, record the reported amount, proposed adjustment, source document and unresolved balance. Distinguish explanations supported by records from explanations still awaiting support. Avoid forcing an unexplained residual into an adjustment simply to make the totals agree.

The IRS's recordkeeping guidance describes invoices, receipts, deposit records and other documents as support for entries in the books. Its Form 1099-K guidance also explains that gross payment amounts are not reduced for items such as fees and refunds. Those are useful reminders about source records, not substitutes for an acquisition review or advice on a particular tax return.

Know what remains unanswered

Once the difference is explained, ask whether the underlying pattern continues across periods. A single reconciled month may miss unusual collection delays or changes in customer concentration. Separately evaluate the seller's adjustments, ongoing expenses and the cash the buyer will need after closing.

If an amount remains unexplained, state the amount and the missing evidence plainly. Its significance depends on the size of the business and the decision being made. A preliminary review can identify questions; a full quality of earnings engagement may examine the records more deeply under an agreed scope. Neither the presence of a CFA designation nor a reconciliation alone constitutes an audit opinion or lender approval.