Client entered an estimated amount into Accrued Tax account back in 2002. It is still on balance sheet. I do not see where they paid this. Should I reverse it to the tax expense account? or will that mess up this year? Accountant has left it yr to yr
By coincidence, has the amount on the actual state return been the same every year? Some states have minimum's that might always be the same.
No the minimum return fee in IL is no where near what is on the books. I think they just forgot they put it on the side for their taxes and it keeps hanging there year after year.
Are they expensing the correct amount each year, and that is just an old book entry? For accrual basis accounting, that was correct, but for cash basis they never paid it so never booked it.
You got me.
If the accrual happened in 2002, the same amount was put on as an expense in 2002. That means it is "sitting" now in Retained Earnings.
I would make a journal entry debiting the Accrued Tax and crediting Retained Earnings. QuickBooks will give you a warning that you are hitting the Retained Earnings account. You still should do it. Make sure you put a descriptive description of what and why are you doing.
This entry will clear out the Accrued Tax Account. You probably will need to make a note on a piece of paper of what and why did you do and give the note to your accountant along with the year-end file and material.
Reka
Thanks for your help RekaUjj. I have been going through this compayny's books for 2 months now trying to fix all the mistakes. I think I am going to have a book to give them for their accountant by the time I am finished.
Cissy - never, ever, ever post anything to retained earnings. It is extremely rare, if ever, that an adjustment would be required to that account. Unless the accountant has reissued prior year financial statements or amended prior year tax returns, the account should not be used.
The best thing to do is leave it alone and let their accountant deal with it at year end. There might have been some issues in 2002 that they booked a liability in case the authorities ever came back after them or they may have some other reasons to not have cleared the balance out. Instead of asking this forum, you probably should contact the accountant or have the client contact the accountant to check on the status of the balance.
