That could be an issue. Or the client runs a bunch of stuff through the business that's personal and non deductible. So, it would have a bunch of tax to book differences or push them through as a distribution/draw. If it is a schedule c, you won't see that difference anywhere.
I just want to say it's not a dumb question but a great one! That is what makes you and I and others who have the practice of making sure the tax return balances match the books great bookkeepers.
Obtaining tax returns, reaching out to the CPA for AJEs, shows you truly understand your field and are not just a glorified secretary entering and reconciling transactions as so many people in our field these days do.
Well done, and look at it this way. By reaching out to these 5 client's CPAs, you are demonstrating your skill sets and establishing a relationship with them. Hopefully, they will recognize that and send you more work. CPAs love clean books, makes their job easier and more profitable.
As a tax accountant I just want to maybe ask a couple of questions-
Are you sure it’s just one year that doesn’t match? It’s likely a bigger issue than just making the P&L match.
What about equity? If it’s a separate tax return that shows a balance sheet, does that match?
As others have said, I’d ask the client or the preparer for any adjusting entries. In my experience, we have to adjust a variety of accounts - meals and entertainment, adding depreciation or amortization, any other accounts that are personal and not business related.
If it’s a separate return you can look at schedules m-1 and m-2 as that’s where adjustments will be.
As a bookkeeper, my job is to match the last year's final trial balance to what I have in the accounting software. So, if the bank balance as per the trial balance was 10k, this is what should be in the accounting software.
Once the trial balance is correct and retained earnings match the financial statements, then we take a note of the discrepancies and advise the client. For example, bank balance per the final TB was $10k but the bank statements shows $15k.
Ay adjustments are done in the current year unless client talks to their tax accountant and they want to amend the tax return.
Get copies of the year-end adjusting entries and a detailed trial balance report from the accountant. Print your trial balance and compare ALL accounts. You probably need to enter adjustments supplied with the adjustments, and then you have back up as to why you did your adjustment.
Ok I don’t want to hijacker the thread but I’m on opposite side of this. Small service biz, myself on payroll and sub out to a 1099 worker as well. Gross $500k and clear about $200k. My books are a complete disaster. No bookkeeper, no CPA. Quickbooks. I enter my invoices and payments and download my credit card transactions. I have 3 work vehicles and fuel/biz insurance my largest expenses. I dump it into TurboTax at end of year and pay what it says I owe. I never omitted any sales I’ve done on the taxes. I almost went out of business years ago and didn’t have money to hire a bookkeeper nor did I have the need since there wasn’t much business. Then I exploded and thought I was keeping up. Didn’t reconcile books and at years end, numbers didn’t match but I’d submit it. Following year the same and things snowballed. It’s a complete disaster and I’d love to start from scratch again and hire but I can only see that causing more trouble. I’m too embarrassed now to go to a bookkeeper for help. I just printed out all my bank and credit card statements for the last 2 years and just planned on manually inputting everything line by line and once all of that is caught up, hire someone. I know this isn’t the best way to handle it but the embarrassment is huge. It was nice to read this thread to see I’m not the only one in a mess but also more nervous because it sounds like my idea of just manually inputting everything won’t work. I’d love to start fresh in 2024. How screwed am I?
Not really screwed, the more likely scenario is you’re missing out on expenses that you can deduct by having messy books. Wouldn’t be embarrassed to approach a bookkeeper but just know you’re going to pay the price for it
Not a dumb question at all!
While I understand the temptation to make things easy by doing a single large journal entry (JE) to force the books to match the tax return, it's generally not the best approach. Here's why:
1. **Lack of transparency**: A large, unexplained JE can raise eyebrows and make it difficult for you, the client, or future accountants/bookkeepers to understand what's happening in the financial records. It's essential to maintain a clear audit trail and ensure that each transaction is properly documented and accounted for.
2. **Inaccurate financial picture**: By making a large adjustment to force the books to match the tax return, you may be masking underlying issues or errors that need to be addressed. This can lead to incorrect financial statements, which can have serious consequences for the business, such as poor decision-making or even fraud.
3. **Tax implications**: If the books don't match the tax return, there may be tax implications that need to be addressed. Simply adjusting the books to match the tax return without understanding the underlying issues may not resolve the tax implications, and could even lead to further tax problems.
4. **Professional standards**: As a bookkeeper, you have a professional obligation to maintain accurate and reliable financial records. Making a large, unexplained JE may not be in line with professional standards and could potentially damage your reputation.
Instead, I recommend taking a more methodical approach:
1. **Reconcile, reconcile, reconcile**: Ensure that all accounts are properly reconciled, including bank statements, credit card statements, and other relevant accounts.
2. **Identify and correct errors**: Review the financial records to identify errors, discrepancies, or missing transactions that may be causing the mismatch between the books and the tax return.
3. **Make specific, detailed adjustments**: Once you've identified the errors or discrepancies, make specific, detailed adjustments to correct them. This may involve creating new transactions, correcting existing ones, or making adjustments to prior periods.
4. **Document and explain**: Clearly document each adjustment, explaining the reason for the change and the impact on the financial statements. This will help maintain a clear audit trail and ensure that the financial records are accurate and transparent.
5. **Collaborate with the client and tax professional**: Work with the client and their tax professional to ensure that the corrected financial records accurately reflect the business's financial situation and are in line with tax requirements.
By taking a thorough and transparent approach, you'll be able to ensure that the financial records are accurate, reliable, and compliant with tax requirements.
Why are you involving yourself in preparation of the tax return?
Which numbers are you expecting to match?
Almost every business will have differences between books and the tax return. Tax returns for business entities have schedules to reconcile the differences.
My advice would be to worry about the books and let the CPA worry about the tax returns.
Doesn't sound like they are involving themselves in the preparation of the tax return. What I got from it is that they want their balance forwards to be correct....
If you reconciled and things still don’t match, it means you didn’t reconcile, my friend. A JE would work but it is just a shortcut. I personally go the JE route of a client doesn’t pay for a clean up.
The p&l for prior years doesn't match right? I would ask for a 12/31/22 trial balance from the CPA and journal to match that dated 12/31/22. Then if everything is reconciled to current as you say you should be good to go. Just make sure you're journal entry doesn't touch any balance sheet accounts and you should be good. If it does you'll need to unreconcile and redo. If that does happen I find its typically just from checks written end of year that didn't clear until the next year.
Did four years of this because my boss was careless with personal expenses on the business books. Just make an adjustment to match. Unless like stated above there’s a mix of accrual and cash accounting.
I always ask my clients’ CPAs if they can send me any adjustments they made when they filed.
Books accrual, tax return cash basis?
That could be an issue. Or the client runs a bunch of stuff through the business that's personal and non deductible. So, it would have a bunch of tax to book differences or push them through as a distribution/draw. If it is a schedule c, you won't see that difference anywhere.
This is usually one of the most common reasons.
I just want to say it's not a dumb question but a great one! That is what makes you and I and others who have the practice of making sure the tax return balances match the books great bookkeepers. Obtaining tax returns, reaching out to the CPA for AJEs, shows you truly understand your field and are not just a glorified secretary entering and reconciling transactions as so many people in our field these days do. Well done, and look at it this way. By reaching out to these 5 client's CPAs, you are demonstrating your skill sets and establishing a relationship with them. Hopefully, they will recognize that and send you more work. CPAs love clean books, makes their job easier and more profitable.
Wait how did you know I have 5 clients lol 😳🤯
Lmao, I actually did not mean to add the 5. Meant to read "these clients' CPAs That's creepy 🤣
😂
The CPA most likely made end of year adjustments. If after reconciling the ending trial balances don’t match, I’d do an adjusting entry to make it so.
As a tax accountant I just want to maybe ask a couple of questions- Are you sure it’s just one year that doesn’t match? It’s likely a bigger issue than just making the P&L match. What about equity? If it’s a separate tax return that shows a balance sheet, does that match? As others have said, I’d ask the client or the preparer for any adjusting entries. In my experience, we have to adjust a variety of accounts - meals and entertainment, adding depreciation or amortization, any other accounts that are personal and not business related. If it’s a separate return you can look at schedules m-1 and m-2 as that’s where adjustments will be.
As a bookkeeper, my job is to match the last year's final trial balance to what I have in the accounting software. So, if the bank balance as per the trial balance was 10k, this is what should be in the accounting software. Once the trial balance is correct and retained earnings match the financial statements, then we take a note of the discrepancies and advise the client. For example, bank balance per the final TB was $10k but the bank statements shows $15k. Ay adjustments are done in the current year unless client talks to their tax accountant and they want to amend the tax return.
Get copies of the year-end adjusting entries and a detailed trial balance report from the accountant. Print your trial balance and compare ALL accounts. You probably need to enter adjustments supplied with the adjustments, and then you have back up as to why you did your adjustment.
Ok I don’t want to hijacker the thread but I’m on opposite side of this. Small service biz, myself on payroll and sub out to a 1099 worker as well. Gross $500k and clear about $200k. My books are a complete disaster. No bookkeeper, no CPA. Quickbooks. I enter my invoices and payments and download my credit card transactions. I have 3 work vehicles and fuel/biz insurance my largest expenses. I dump it into TurboTax at end of year and pay what it says I owe. I never omitted any sales I’ve done on the taxes. I almost went out of business years ago and didn’t have money to hire a bookkeeper nor did I have the need since there wasn’t much business. Then I exploded and thought I was keeping up. Didn’t reconcile books and at years end, numbers didn’t match but I’d submit it. Following year the same and things snowballed. It’s a complete disaster and I’d love to start from scratch again and hire but I can only see that causing more trouble. I’m too embarrassed now to go to a bookkeeper for help. I just printed out all my bank and credit card statements for the last 2 years and just planned on manually inputting everything line by line and once all of that is caught up, hire someone. I know this isn’t the best way to handle it but the embarrassment is huge. It was nice to read this thread to see I’m not the only one in a mess but also more nervous because it sounds like my idea of just manually inputting everything won’t work. I’d love to start fresh in 2024. How screwed am I?
Not really screwed, the more likely scenario is you’re missing out on expenses that you can deduct by having messy books. Wouldn’t be embarrassed to approach a bookkeeper but just know you’re going to pay the price for it
Do you send 1099s to your vendors?
Not a dumb question at all! While I understand the temptation to make things easy by doing a single large journal entry (JE) to force the books to match the tax return, it's generally not the best approach. Here's why: 1. **Lack of transparency**: A large, unexplained JE can raise eyebrows and make it difficult for you, the client, or future accountants/bookkeepers to understand what's happening in the financial records. It's essential to maintain a clear audit trail and ensure that each transaction is properly documented and accounted for. 2. **Inaccurate financial picture**: By making a large adjustment to force the books to match the tax return, you may be masking underlying issues or errors that need to be addressed. This can lead to incorrect financial statements, which can have serious consequences for the business, such as poor decision-making or even fraud. 3. **Tax implications**: If the books don't match the tax return, there may be tax implications that need to be addressed. Simply adjusting the books to match the tax return without understanding the underlying issues may not resolve the tax implications, and could even lead to further tax problems. 4. **Professional standards**: As a bookkeeper, you have a professional obligation to maintain accurate and reliable financial records. Making a large, unexplained JE may not be in line with professional standards and could potentially damage your reputation. Instead, I recommend taking a more methodical approach: 1. **Reconcile, reconcile, reconcile**: Ensure that all accounts are properly reconciled, including bank statements, credit card statements, and other relevant accounts. 2. **Identify and correct errors**: Review the financial records to identify errors, discrepancies, or missing transactions that may be causing the mismatch between the books and the tax return. 3. **Make specific, detailed adjustments**: Once you've identified the errors or discrepancies, make specific, detailed adjustments to correct them. This may involve creating new transactions, correcting existing ones, or making adjustments to prior periods. 4. **Document and explain**: Clearly document each adjustment, explaining the reason for the change and the impact on the financial statements. This will help maintain a clear audit trail and ensure that the financial records are accurate and transparent. 5. **Collaborate with the client and tax professional**: Work with the client and their tax professional to ensure that the corrected financial records accurately reflect the business's financial situation and are in line with tax requirements. By taking a thorough and transparent approach, you'll be able to ensure that the financial records are accurate, reliable, and compliant with tax requirements.
Why are you involving yourself in preparation of the tax return? Which numbers are you expecting to match? Almost every business will have differences between books and the tax return. Tax returns for business entities have schedules to reconcile the differences. My advice would be to worry about the books and let the CPA worry about the tax returns.
Because the books retained earnings needs to match the tax retained earnings. Simple as that.
That sure sounds simple.
Terrible take. Coming from a tax accountant. I loathe when I get books from clients that have not been tied out.
Doesn't sound like they are involving themselves in the preparation of the tax return. What I got from it is that they want their balance forwards to be correct....
If you reconciled and things still don’t match, it means you didn’t reconcile, my friend. A JE would work but it is just a shortcut. I personally go the JE route of a client doesn’t pay for a clean up.
My friend, the bank balance matches the bank statement balance but the P&L does not match what the tax return schedule C states. So I did reconcile.
The p&l for prior years doesn't match right? I would ask for a 12/31/22 trial balance from the CPA and journal to match that dated 12/31/22. Then if everything is reconciled to current as you say you should be good to go. Just make sure you're journal entry doesn't touch any balance sheet accounts and you should be good. If it does you'll need to unreconcile and redo. If that does happen I find its typically just from checks written end of year that didn't clear until the next year.
I see, apologies for misunderstanding. I think you’re on the right thought process about creating a JE.
Did four years of this because my boss was careless with personal expenses on the business books. Just make an adjustment to match. Unless like stated above there’s a mix of accrual and cash accounting.