Help in Retained earning amount

[Binesh Desai]

Hi,

I am new to preparation of 1120S. I am preparing 1120S. There is a difference of $270 in amount of retained earning as on 12/31/2004 between customer's QUICKBOOKS and amount of year end retained earning reported by preparer on 1120S of TY 2004.I took inome and expenses numbers for 1120s from QBs and retained earning at begining of year for 2005 year from 1120s of 2004 . As a result the BALANCE SEET is not tallying and gives difference of $270 b'n asset and liabilities.

How to resolve this ?

Binesh

[veritas]

Most likely something was changed in Quickbooks after the 2004 return was prepared. I once did this myself on my own books when I posted a check with a date of 1919 or something like that. Drove me nuts trying to find it.

[Bees Knees]

This is a common problem. People who do not know proper accounting are using programs such as Quickbooks to do their own bookkeeping rather than hire a professional. When they take their books to a tax preparer, the tax preparer has to make a number of adjustments to make the balance sheet and income statement reflect propert tax accounting rules. The balance sheet on the tax return reflects the corrected amounts. If the client does not go back into Quickbooks to adjust for these adjustments, the numbers for the following year will also be off.

Have your client check with the old tax preparer to see if he or she made any adjustments to the Quickbooks numbers when the 2004 tax return was being prepared.

[S T]

Possible

Could it have been maybe 50% disallowance on meals and entertainment, or maybe a non deductible penalty or other item???

Sandy

[Bees Knees]

Another problem I have had in the past is when they do their Quickbooks and print out the balance sheet and income statement under the Accrual Method, when they gave me a set of Cash Method financials the previous years. I have pulled many a hair out trying to figure that one out before realizing Quickbooks has a button to print out the reports either way.

[Gretel]

I have pulled many a hair out trying to figure that one out before realizing Quickbooks has a button to print out the reports either way.

Me too! The reports can't be relied on. It just is amazing how much can go wrong with QB, from both, the client side and the accountant's.

Maybe it's just depreciation.

[John of PA]

Double Click Retained Earnings

If you using the Premier Edition of Quickbooks, you can just double click the Retained Earnings Account (from the Balance Sheet), and see all Reatined Earnings activity from day 1, which will show where the 270 came from. If the adjutsments were never made to the Master Quickbooks file (clients file), then ask the other accounting for at least a printout of the Journal Entries. If he won't comply, report him to the state board of accountancy.

[Binesh Desai]

In absence of any other information, if the customer's QB has a diffrent number as retained earning at the begining of the year TY 2005 compare to the number reported on the TY 2004 1120S, what are the options to get the B/S tallied so that customer do not derive any benefit out of this. Since the diffrence is small customer wants me to close the 1120s for TY2005 even if he is losing something on account of not having the accurate info. Is there any way that adjustment can be made under other heads of balnace sheet like cash , account receivable , loans from share holder. While making adjustment appropriate remark shold be kept on record with customer's file.

Thanks

Binesh

[Bees Knees]

You are basically asking how to "fudge" a number to make it balance due to client being un-willing to solve the issue. There is no correct way to do that because there is no provision that allows you to plug in a meaningless number just to make it balance. However, the fact is, we all do it from time to time. Off the record, make an equity account entry that either increases capital contributions, or increases distributions to owners, depending on the difference of the debit or credit balance in retained earnings. That way, if retained earnings are less than they should be, you balance it by treating the difference as a distribution. If retained earnings are more than they should be, you balance it by contributing the difference to contributed capital. That way you don't give them the benefit of an extra deduction, or increase their income on the income statement. The "plug" stays on the balance sheet.

[Unregistered]

Print a balance sheet in QuickBooks today as of 12/31/04. Export it to Excel. Label the column "12/31/04 As of New QB". Then pick up last year's tax file and key in the balance sheet amounts from the 12/31/04 balance sheet that you had when the return was prepared (or key in the amounts based on the 1120 Schedule L if you don't have the QuickBooks balance sheet). Label this column "12/31/04 as of PY TR" (Prior Year Tax Return). Subtract first column from second column. This will show you which balance sheet accounts changed. You'll most likely see changes to A/R, Inventory, A/P or Cash, because the client has made some change to a prior year transaction after you received the QuickBooks backup to prepare the return. Once you know which account(s) change, adjust Retained Earnings offsetting the appropriate P&L acccount (e.g., if A/R changed, offset either sales or bad debts; if A/P changed, if you have last year's A/P Listing, print out the new one and see which vendor changed and post the A/P adjustment to the P&L account which was likely affected by the change to that specific vendor).

[S T]

Great

Thanks for the post, great information to resolve balance sheet issues in QB, have any pointers on Peachtree?? Would they be the same?

Sandy