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In 2011, my business was an LLC classified as a disregarded

entity. On Jan. 23, 2012...
In 2011, my business was an LLC classified as a disregarded entity. On Jan. 23, 2012, we elected to change to an LLC taxed as a partnership. My husband and I are both involved in the business. This is our first year filing a 1065 partnership return. I am using Quickbooks for accounting (which I started using January 1, 2012) and TurboTax Business for our business tax returns this year. I'm having trouble balancing my balance sheet in TurboTax.

At the end of 2011, we were just starting the business. We purchased a lot of equipment to be used in our business. On our 2011, 1040 schedule C tax return we claimed and depreciated the equipment. Our business took a loss that year. Since we were just starting out, I did not use Quickbooks in 2011. I just kept all of our receipts and records to use on our tax returns.

For the beginning of the year balance sheet in TurboTax, I have entered zero for all of the relevant categories (Assets, Liabilities and Equity). From what I can tell from answers online, since it is a new form of the business, we are starting out at zero.

In Quickbooks, our end of the year balance sheet is balanced. However, it is not balanced in TurboTax. For assets, I entered our checking account balance at the end of the year and the total fixed assets, which include all of our equipment purchases from both 2011 and 2012, and the accumulated depreciation, which includes the depreciation from 2011. In Liabilities, I have sales tax payable and a long term liability of a small loan. Then, in Equity, I put the cash contributions from purchases we made for the business this year and then property contributions for the equipment we purchased last year. We have our draws. Then, Quickbooks has an opening balance equity, which is how much we actually had in our checking account at the beginning of 2012. QB also has retained earnings, which is the 2011 depreciation. When I go to TurboTax, it doesn't show Retained earnings or opening balance equity. How can I get my balance sheet in balance if it is not including all of the categories that QB has?
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Answered in 2 hours by:
4/9/2013
Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,245
Experience: Extensive Experience with Tax, Financial & Estate Issues
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Stephen G :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Stephen G :

First of all, let me explain how it should work, and perhaps you can figure out what you need to do by comparing that to what you actually did.

Stephen G :

When switching from a sole proprietorship to a Husband/Wife Partnership, in terms of Quickbooks, the opening entry is used to record whatever assets and liabilities (if any) that you bring from the sole proprietorship to the partnership.

Stephen G :

That entry would record your investment in the partnership and the closing balances of your sole proprietorship become the opening balances of the partnership.

Stephen G :

So for example............let's say you had 1,000. in cash; 5,000. in Equipment & 1,000. in Accumulated Depreciation at the close of business in your proprietorship;

Stephen G :

The entry to start the partnership would be:

Stephen G :

Dr Cash 1,000.

Stephen G :

Dr. Equipment 5,000.

Stephen G :

Cr Accum Dep 1,000.

Stephen G :

Cr Prt H Capital 2,500.

Stephen G :

Cr Prt W Capital 2,500.

Stephen G :

That would be your opening balance sheet.

Stephen G :

Don't know why you would have the 2011 Accum Dep in Retained Earnings

Stephen G :

If your quickbooks balance sheet is balanced, that's what you want to use to prepare your ending balance sheet on Turbo Tax; the ending balance sheet on turbo tax is supposed to be the balance per your books, not some other set of balances that you come up with just for tax purposes.

Customer:

Thanks for responding. I don't have everything right in front of me right now to look and see how I have the opening balance set up in QB. I'll have that tomorrow morning. Regarding the 2011 accumulated depreciation being in retained earnings, I think it is in there because I entered the equipment using the date we purchased it in 2011 and I entered the 2011 accumulated depreciation with the date 12/31/2011. So, with regard to that, I'll change the date to 1/1/2012.

Stephen G :

You don't bring on any balance to retained earnings; the Accumulated Depreciation is a balance sheet "contra asset account".

Customer:

I did use the QB balance sheet to manually enter the information into TurboTax, but I am thinking that some of my issue is rooted in the opening balance sheet. I'll have to look at it tomorrow to see how it compares to your example above. Just to clarify. Are the entries above entered into QB using General Journal Entries?

Stephen G :

Remember that the balance sheets are a reflection of the grouped account balances at a point in time. So if you have a "balanced" balance sheet at the beginning of the period, and all your transactions balance in quickbooks, then you have to balance at the end of whatever period you are dealing with.

Stephen G :

The entry above you referred to would be the opening entry or opening balances of the accounts on 1/1/2012, depending upon how you chose to record them. You wouldn't have them as journal entries if you also have some kind of opening entry; that would create a duplication.

Stephen G :

Ok, talk to you tomorrow.........................

Customer:

Okay. I went into Chart of Accounts in QB and changed the opening balance in the account register to reflect what we brought into the partnership at the beginning of the year. I deleted the entries in the register dated 2011, so that I did not duplicate information. Now my P&L shows a depreciation expense of the depreciated equipment from 2011 and 2012, not just 2012. Is this correct? My balance sheet has changed in that it no longer shows the net income line. It shows retained earnings which equal the net income from the P&L. That is the only difference on the balance sheet.

Customer:

When I went into TurboTax, the balance sheet only shows the depreciation from this year and it still is not balancing.

Stephen G :

You probably booked the 2011 depreciation to the depreciation expense account rather than making it part of your opening entry, which would have credited accumulated depreciation.

Stephen G :

Your accumulated depreciation account should have the 2011 & 2012 depreciation as a credit balance and the only expense in the depreciation expense account would be the 2012 depreciation.

Stephen G :

Recheck your opening entry where you brought on the assets & see if you credited the accumulated depreciation account and nothing else to do with depreciation.

Customer:

So when I go into the accumulated depreciation register, what account should I charge the 2011 depreciation to? In QB, when I try to change the opening balance entry, it puts me into the register for that account. Also, I just want to make sure this is accurate, accumulated depreciation should show up as a negative number, correct??

Customer:

Okay, I just figured out that I should use opening balance equity in the account field for the accumulated depreciation account.

Stephen G :

That should be both of your capital accounts.

Stephen G :

Are you typing?

Stephen G :

I'm about to sign off for the nite; it's 12:30AM here........................

Customer:

I credited the cost of the equipment that we purchased in 2011 to our contributions accounts. I thought that is what you meant by your above example. I know that my balance sheet issue in TurboTax has to do with the 2011 depreciation and the cost of the equipment. I was able to balance all three categories in TurboTax: Income reconciliation, capital reconciliation and balance sheet by removing the equipment from my beginning of the year assets and by using the opening balance equity that is now in QB from when I changed the opening balance equity in the accumulated depreciation account.

Stephen G :

Sounds ok to me; it is just that the opening balance equity is really divided in half to be reflected as your partner's capital accounts, one for each partner.

Customer:

Now that the problem is isolated (I think...), I need to fix QB since that has to be an accurate reflection of our books.

Customer:

Okay. It's late here too. I'll look at it again tomorrow. Maybe I'll be able to get it straightened out once I look at it again. Thanks!!!

Stephen G :

ok, if I was there, we could fix it quickly; it is difficult this way.

Customer:

I know. I appreciate everything you are doing to help!!

Stephen G :

OK, good nite

Customer:

Thanks. you too.

Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,245
Experience: Extensive Experience with Tax, Financial & Estate Issues
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Stephen G. and 87 other Tax Specialists are ready to help you
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The balance sheet account "Accumulated Depreciation" should reflect the total depreciation from 2011 and 2012.

You must have done something wrong when you recorded the opening entry and the initial partners' capital accounts.

The accumulated depreciation is a credit balance account. I don't know how you are recording these things, but it wouldn't be a negative or minus as that would indicate a debit balance in a credit balance account.

If you go back toward the beginning, I gave you the entry to open the books and record the partners' capital accounts.
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