[Anonymous]

When reconciling prior year tax to books r u only concerned with the equity section, or do u take the time to correct other asset liabilty accounts as well?

[klmc]

All temporary differences between book and tax go to M-1 which includes items in the income statement. M-2 is used to report adjustments to the retained earnings.

|FAR| - 72, 83
|AUD| - 73, 76
|REG| - 76
|BEC| - 73, 82

ALL DONE!!

[klmc]

All temporary differences between book and tax go to M-1 which includes items in the income statement. M-2 is used to report adjustments to the retained earnings.

|FAR| - 72, 83
|AUD| - 73, 76
|REG| - 76
|BEC| - 73, 82

ALL DONE!!

[Anonymous]

Thanks klmc but I was referring to the schedule L prior year reconciliation and the equity tie.

[Anonymous]

I always reconcile the Equity, Asset, And Liability Sections when I do it.

[confusedcandidate]

Yes – if you are adjusting equity accounts then you HAVE to adjust the other balance sheet items.

Another way to look at is that you are really just changing their assets and liabilities, and the difference is equity – and that difference in equity is hopefully their income from PY, less distributions, plus contributions.

If you change the asset accounts to where they should be, and you have their liabilities tied out to loans and whatnot, the difference has to come from income and owners contributions.

If you are still struggling, the cheat is to pull up a list of PY adjusting entries. Go through it with a highlighter and mark all of the balance sheet accounts. Do those adjustments exactly as you see them, and the very last thing you do is run the difference through retained earnings.

Weekends are meaningless to a CPA candidate

[Anonymous]

Thanks confused I see u understand. I get what u r saying but I'm thinking of a situation where one asset has gone down and another has gone up the same amount because someone changed something. So do u think it would be necessary to adjust those to tie the current year.

[Anonymous]

I think this is the answer you want.

Retained earnings roll forward calc:

Prior year retained earnings plus current year book income minus current year distributions = current year ending retained earnings.

[confusedcandidate]

Regarding one asset going down and one going up. Someone made that adjusting entry last year so they probably had a reason for it. If it's an asset, it could be breaking out land from building, or breaking apart receivables from shareholders, or something like that. You should do it for continuity's sake even though it was just a reclassification and didn't effect the P&L or equity.

To anyone playing along at home not following: quite often (usually) we'll get the financials from the client and they won't have booked our PY adjusting entries, so nothing flows. (Or worse, they'll have booked stuff to prior year after we did the return, gah). Step zero in the process is getting their books up to speed by re-posting our adjusting entries. This can be really tricky when you first start, but you get the hang of it real quick.

Weekends are meaningless to a CPA candidate

[Anonymous]

Thanks again confused! I am running into your second scenario quite a bit this year and not so much on the past. Clients booking things we didn't tell them to. Often times it is involving parables and receivables with no offset to income. I've been at this a little while and hardly ever saw this on the past. It seems to be recurring this year with many clients. And I started to wonder if tying that stuff down even matter (accept for the fact that sched L wouldn't match for any given year) but I came to the conclusion of was probably ok as long as equity tied. I think as quickbooks evolves our job is changing 🙂

[confusedcandidate]

That's probably my #1 peeve about clients and the stupid things they pull to make my life harder :/ I just pull the financials exactly as they gave them to me, and only use that for the tax return. They can do whatever they want after that.

The next year, nothing is going to roll because they entered a lot of stuff for PY that I don't know about. So I do the same exercise: either go through last year's AJEs, hit every balance sheet account that we did last year, and run the difference through equity. Usually they entered accrued income or expenses because that's pretty much the only thing you can do without messing up other accounts, so I just put it to the year of the return I'm doing and call it a day. It probably isn't gaap, but nobody really cares about that in the real world, and most of my clients way less sophisticated than that. ($1-20m revenue, mostly cash basis anyway…)

Yet another trick is to just take their 12/31/xx trial balance, line it up next to your adjusted 12/31/xx TB, and put a third column in for the difference. That difference is your AJE to tie equity and accounts to PY TR. Now everything rolls, and the differences are their current year transactions.

Isn't anyone teaching you this stuff? Sucks that you have to ask a stranger on the internet. Accounting is hard…

Weekends are meaningless to a CPA candidate

[confusedcandidate]

C9p9a9: how are you doing? Make any progress? It's a lot to learn all at once, especially when you are slammed with work during season, and you don't know how to do any of it, and people are breathing down your neck asking for work they gave you weeks ago…

Keep asking away if you have questions.

Weekends are meaningless to a CPA candidate

[EuroAddict]

“Yet another trick is to just take their 12/31/xx trial balance, line it up next to your adjusted 12/31/xx TB, and put a third column in for the difference. That difference is your AJE to tie equity and accounts to PY TR. Now everything rolls, and the differences are their current year transactions.”

My life. lol

-----------------------------
BEC - 77, 03/2015 (first try)
FAR - 79, 05/2015 (second try)
REG - 83, 12/2015 (first try)
AUD - 84, 03/2015 (first try)

I got 99 problems but the CPA ain't one.

[Author]

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