Prior year balance sheet not correct

[David]

New client's previous CPA did the bookkeeping and prepared the S Corp tax return. The cash basis QB financial statements were used and the balance sheet showed negatvie AR balance and no accumulated depreciation. Sec 179 deduction was always taken for all assets in prior years.

 

The 2012 tax return actually reports the negative AR balance and no accumulated depreciation on the balance sheet.

 

Will it raise a red flag with the IRS if I report the correct 2012 balance sheet balances? Or do I have to use the incorrect balances that was reported on the 2012 tax return?

 

If the balances reported on the 2012 tax return has to be used as beginning balances in the 2013 tax return, how should I report the difference needed to correctly report the 2013 balances? The difference will be ~ $25K.

 

Thanks.

[JohnH]

By any chance does the client meet the two "under $250k" tests for omitting the balance sheet? If so, then leave it off the return this year but keep your worksheets for your own reference. Then begin reporting next year with proper opening and ending numbers.

[kcjenkins]

I agree with John, but if you must report it, the yes, use the incorrect balances that was reported on the 2012 tax return as starting balance and then report the difference needed to correctly report the 2013 balances as 'timing differences'.  

[michaelmars]

I have used corrected opening numbers and have never received an inquiry, is 25k significant to the overall balance sheet?

 

sounds like fixed assets cost would be grossed up and a/d reported so the net should be the same.  negative a/r might include overpayments or advanced deposits so here to, reclassifying them will not change the net retained earnings figure.