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I have a question regarding filing out Form 3115 for my

Customer Question
client who is going from...
I have a question regarding filing out Form 3115 for my client who is going from cash to accrual.The problem is my client received 300,000 more on the cash basis this year than on the accrual basis and I wasn’t sure where to input the 300,000 number. Also, when attaching an explanation for the changes, could I enter for example, “Beginning AR 800,000. Ending AR 500,000” Section 481(A) negative adjustment” or is more information required (for simplicity, I didn’t include any AP)?Lastly, is it a problem that there would be a negative 481A adjustment or is that a normal occurrence when going from cash to accrual.
Submitted: 4 months ago.Category: Tax
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Customer reply replied 4 months ago
The part of Form 3115 giving me trouble is filling out Schedule A – Change in Overall Method of Accounting.
Answered in 11 hours by:
12/2/2017
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 4 months ago
Carter McBride
Carter McBride, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,032
Experience: Adjunct Professor
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Hey! I'm Carter, I'm a CPA and I hope I can help you out!

For the $300,000 difference this year does not matter. The 3115 is making the change in accounting method active for the beginning of the year. So anything for this year is just reported on the accrual method, you do not need to worry about the cash method for this year.

That explanation is fine for the 3115 as well. They're just looking at what has changed.

Negative 481(a) adjustments are pretty common. It's not a big deal to have one.

Hopefully that answers your question. If you need anything else, let me know. If not, please leave a review!

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Customer reply replied 4 months ago
just to confirm, I enter -300,000 on line a. And if I wanted to accrue AP, would that be a negative or positive amount on line C?
Last part, now that the balance sheet schedule L is being reported on the accrual basis, I have an ending AR balance. How do I balance Schedule L if I have ending AR of 500,000? Do I change the beginning figures and report AR and AP and increased retained earnings?
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 4 months ago
The AP will be a negative amount since you are recognizing those expenses when you are making the change.
Your Schedule L will have an adjustment in R/E to balance. Should be by the amount of your 481 (a) adjustment.
Let me know if you need anything else. If not, leave a rating! Thanks!
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Customer reply replied 4 months ago
do I change the beginning balance on Schedule L to include AR and AP? Does that matter if it doesn't tie to last year's ending Schedule L?
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 4 months ago
You want to keep the beginning balance as what was reported on the prior year. That way the PY schedule L will tie. It will just look weird for the one year but you habe the 3115 to explain why it looks odd.
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Customer reply replied 4 months ago
Ok so I keep the prior year balance sheet numbers the same and in this example put ending AR 500,000. Entering the 300,000 481a on other deductions and the M-1 leaves a 200,000 difference. How do I balance the ending balance sheet then?
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 4 months ago
I'm assuming it's AP then. The 481 adjustment is just recognizing income and expenses sooner so if your adjustment are right it will balance
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Customer reply replied 4 months ago
No AP in this example. I have the tax return in front of me.
Ending AR went from 0 (cash basis) to 500,000. 300,000 other deduction for the 481a adjustment and 300,000 on the M-1. It says I need 200,000 to balance. Any suggestions?
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 4 months ago
With out looking at the financials then I'd say it's just a $200k adjustment to R/E....youre moving AR to where it should be and in the accounting equation that would equal it
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Customer reply replied 4 months ago
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