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Having to adjust end of year to beginning of the next year retained earnings is a pain, and not unheard of. The leading software provider has put out a product that allows this for years.
The good thing about a $100 item is it's small, and considered 'immaterial'. so, a working solution will be fine.
Tax returns should report the same balance sheets from the end of one year to the beginning of another. The suggestion your accountant made, that you just push an adjustment through income for this year (through office supplies) will work, but is part 2 of the solution, because your beginning of year (BOY) balance sheet needs to balance with the end of the prior year (EOY-1).
I would start by fixing the beginning of year balance sheet, with an adjustment made to cash to make it balance. That way, the software will present retained earnings as they should be.
Then, make an adjusting entry for an income statement account, like office supplies, for $100 and fix the cash balance. This will push the change through an income statement account (a nominal account) which will allow this year's income statement to absorb the 'fix'.
Make the entry to retained earnings for 12/31/11. That way, your 1/1/12 balance sheet shows the correct retained earnings balance.
Make the adjusting entry for the $100 on 1/1/12.
The second entry is for cash and office supplies.
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I need a little clarification on what it means to make an adjustment to cash, please? When creating this je to make an adjustment to cash - what account would I debit $100 & what account would I credit $100?
debit retained earnings 100, credit cash for 100, dated 12/31/11. That will allow your 12/31/11 retained earnings to be correct.
Then, in 2012, debit cash $100 to correct cash to actual and credit office supplies for !00.
AHHH... Great thank you!
Ok, I'm sorry about this.
We don't have a "cash" account, can you define this?
Do I create a new GL account called "cash"?