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Jacy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience:  Nine years individual income tax preparation and consulting
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I have a new client that recently switched over to me and now

Resolved Question:

I have a new client that recently switched over to me and now he wants me to do his 2009 C Corp Tax return 1120. He gave me a copy of his 2008 return which was prepared by someone else. He also gave me a copy of his books.

Looking at his books, his balance sheet per the tax return doesn’t match the balance sheet per books. I know that I will have to adjust his books to agree with the tax return.

I am having problems with these journal entries since they are different from the regular end of the period adjusting entries.

For example:

The cash on hand per tax return is 6400 and the cash on hand per books is 5000. Would the adjusting entry to match be Dr. Cash 1400 and Cr. Retained earnings? I am having a hard time deciding which account to credit.

Another example is that automobile expense per tax return is 9400 and per books is 14,000. Would the adjusting entry to match be Dr. Auto Expense 4600 and Cr. Retained earnings 4600?

Please let me know if I can do anything else to clarify this for you.
Submitted: 5 years ago.
Category: Tax
Expert:  Jacy replied 5 years ago.

Jacy :


Expert:  Jacy replied 5 years ago.



You will need to adjust each balance sheet item that does not match the tax return. There is no need to make any entries to change income and expense items in 2008, as the net income or loss flowed into retained earnings anyway. One big journal entry to make the book ending 2008/beginning 2009 balance sheet match, with the plug to retained earnings should do it.


I hope this has been helpful to you.

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Thank you!




Jacy and 2 other Tax Specialists are ready to help you
Customer: replied 5 years ago.
I'm sorry. I'm still a little confused. I should just make 1 big entry to make it all equal? Why wouldnt I have to make sure that my cash balances out to whats on the tax return since that is what's reported to the IRS?
Customer: replied 5 years ago.
also, what would the plug be? i'm having a hard time even thinking what your journal entry would be.
Expert:  Jacy replied 5 years ago.



The entire ending balance sheet on the books for 2008 needs to match the ending balance sheet on the tax return. If the only item that is off is cash, then it will be simple. I suspect there are other balances that are off. Make one large journal entry that adjusts each balance sheet account and a debit or credit to Retained Earnings to balance it.


Hope this makes sense. If not, Reply and I'll keep trying!

Customer: replied 5 years ago.

Okay. So make 1 big journal entry to make the ending 2008 book balance to the beginning 2009 tax return. SO for example (referring to my original question) the journal entry would be:


Dr. Cash 6400

Dr. Auto Expense 4600

Cr. Retained Earnings 11000

Expert:  Jacy replied 5 years ago.



If you are making the JE dated 12/31/2008, you can adjust the entire trial balance as follows:


To make it simple, make one journal entry per balance sheet account (except Retained Earnings). For example:


DR Cash 1400

Cr Retained earnings 1400


To reduce the book Auto Expense the entry will be:


CR Auto Expense 4600

DR Retained Earnings 4600


Hopefully when you are done, the Retained Earnings balance on the books will match the tax return.


Good luck!