S Corp Return - Sch L Not Balancing

[ETax847]

A new client walked in wanting his S-Corp taxes done.  In his prior years' returns, his Schedule L did not balance.  Is this any cause of concern? 

[kathyc2]

Yep.  A balance sheet needs to balance. 

[BulldogTom]

19 minutes ago, ETax847 said:

A new client walked in wanting his S-Corp taxes done.  In his prior years' returns, his Schedule L did not balance.  Is this any cause of concern? 

Depends on by how much.   There is almost always a rounding difference.   If it is a couple of dollars...no big deal.   If it is way out, then you need to fix it.

Tom
Longview, TX

[ETax847]

It's way off. I'm hesitant to take this client on given that issue.  

[jasdlm]

I'm surprised the software let the return efile.  By chance, is the income/asset amount under what is required for filing the balance sheet?

Regardless, how do you feel about the accuracy of the clients books & records?  That's where the real decision likely lies.

[Lee B]

First step is to compare Schedule L to last years trial balance or balance sheet to to see where things are out of balance.

Is there a bank account reconciliation for 12/31 available?

Does the Depreciation Schedule tie out to Schedule L and the balance sheet?

Every amount on Schedule L should tie out to something i.e. Accounts Receivable Detail Report, Accounts Payable o/s Detail Report and etc.

[BulldogTom]

48 minutes ago, ETax847 said:

It's way off. I'm hesitant to take this client on given that issue.  

 

Just now, cbslee said:

First step is to compare Schedule L to last years trial balance or balance sheet to to see where things are out of balance.

Is there a bank account reconciliation for 12/31 available?

Does the Depreciation Schedule tie out to Schedule L and the balance sheet?

Every amount on Schedule L should tie out to something i.e. Accounts Receivable Detail Report, Accounts Payable o/s Detail Report and etc.

What cbslee said.   I would guess it will be in the equity section, that is where I see the most issues.   In QB, the one account I hate to see is "Opening Balance".

Tom
Longview, TX

[kathyc2]

2 hours ago, ETax847 said:

It's way off. I'm hesitant to take this client on given that issue.  

The the balance sheet from client in balance and just the tax return off?  Or did neither balance?

If you don't have good beginning balance sheet numbers, you cannot accurately prepare a 2021 return.  If your knowledge base is mainly in tax and limited in accounting, you will likely struggle to fix the prior year(s).  Someone with a through accounting understanding will have a much easier time straightening this out.  

[Abby Normal]

3 hours ago, ETax847 said:

It's way off. I'm hesitant to take this client on given that issue.  

Don't they have books from QuickBooks or other software? Print out a balance sheet and see what it should be. My guess is their books are a mess and previous tax preparers never adjusted their books to match their tax returns. In which case, I would either decline the client, or extend and tell them they need to pay you to fix their books, before you can file any returns.

[WITAXLADY]

Good Answer  -  Upfront and needs to be done.. at least 1 year or 2 back..

[jasdlm]

I have so many clients this year whose books don't match last year's tax return (which I did).  Many of them have the same 'professional' bookkeeper.  It's driving me crazy.  I'm spending way too much time adjusting the balance sheet to match last year's tax return and figuring out what changed so I can properly account for it.  It is making me very frownie face.  Some of the journal entries I am seeing make me want to reach out to the bookkeeper and ask, 'Have you ever heard of double-entry accounting'?  My snark factor is high today after spending most of last night cleaning up books that I already cleaned up once when prepping the 2020 tax return.

I know, I know ... close/password the books after tax prep ... just doesn't always go well with clients. 

I'm a grouchy pants.  A couple are so bad they just got an email saying 'you're on extension because your books are a hot mess ... get me all your bank statements'.  Hit send on the 7004 and moved on.

Double Frownie Face.

[kathyc2]

57 minutes ago, jasdlm said:

Many of them have the same 'professional' bookkeeper.

Unless the bookkeeper is older, they have probably never kept books other than computerized.  As a result, they have no idea how the accounts all come together. 

 

[jasdlm]

2 minutes ago, kathyc2 said:

Unless the bookkeeper is older, they have probably never kept books other than computerized.  As a result, they have no idea how the accounts all come together. 

 

I understand (no, I don't understand, but I accept this).  However, it just stands to reason that if you take one tiny look at the balance sheet and see something like, say, negative cash in an amount far higher than the business could ever possibly float or the bank would ever carry, you might dive in for a better look.

Like I said, snark factor is high today.

[jasdlm]

One more thing, and then I'll stop:  Who the heck journals against cash?!?  When did this become a thing?

I'll go make another latte and take a 'nice' pill.  Promise not to come back and post again until I do so.

[kathyc2]

12 minutes ago, jasdlm said:

you might dive in for a better look.

Are you suggesting they use logic? 

As I'm scaling back to retirement, I'm not doing any corp returns other than one who begged me to keep doing hers.  When I was doing them, I insisted on getting a back-up copy of the full books rather than printouts.  Too many times people would do stupid stuff that it was easier for me to look at the books myself than explain to them why I thought something looked off. 

Several years ago I took on someone who on the phone told me their books were impeccable.  Scrolling through I saw that they "plugged" something like 60K to make cash balance.  They were told to come pick up their info and pay me for time I had invested in it.

 

 

 

[jasdlm]

11 minutes ago, kathyc2 said:

Are you suggesting they use logic? 

As I'm scaling back to retirement, I'm not doing any corp returns other than one who begged me to keep doing hers.  When I was doing them, I insisted on getting a back-up copy of the full books rather than printouts.  Too many times people would do stupid stuff that it was easier for me to look at the books myself than explain to them why I thought something looked off. 

Several years ago I took on someone who on the phone told me their books were impeccable.  Scrolling through I saw that they "plugged" something like 60K to make cash balance.  They were told to come pick up their info and pay me for time I had invested in it.

 

 

 

I agree.  I never work from paper.  Those 'adjust to balance' or 'reconciliation discrepancies' are the absolute worst!  How do people come up with these things?!?

 

[Lee B]

What you don't believe the Quickbooks ads telling you that you don't need to know accounting or bookkeeping

[jasdlm]

Just now, cbslee said:

What you don't believe the Quickbooks ads telling you that you don't need to know accounting or bookkeeping

Accounting for dummies :(.