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I need to make a cash to accrual adjustment for tax

reporting on an 1120S. I...
I need to make a cash to accrual adjustment for tax reporting on an 1120S. I went through and have my cash to accrual difference at the start of the year 1/1/17 of $160k (AR of $180k and AP of $20k).
The plan is to add $40k of income for the next four years on line 5 of page 1.
I'm wondering the best and cleanest way to reflect this change on M-1, M-2 and Schedule L of the 1120S? Also, in regards ***** ***** QB file, do any entries need to be made or do we just start running the reports using the accrual basis of accounting?
Thanks much
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Answered in 15 hours by:
3/18/2018
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 can help.
On line 5, you'll label it a 481(a) adjustment. For Schedule L, restate the balance sheet into the accrual method. For M-1, you'll have an entry of $40k for income on return not on books. For the M2, you'll have an other adjustment.
Let me know if you need anything else. If not, please leave a rating. Thanks!
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Customer reply replied 1 month ago
Hey Carter, thanks so much for the response!
I want to make sure I understand this. So Schedule L, will have a beginning of year balance on cash basis and end of year on the accrual basis. M-1 will have the additional $40k.
You mentioned the M-2 will have "an other adjustment". Will that be an addition of the $40k as well?
Thanks again!

Yea. That's right. Yea, the M-2 will just get adjusted for the income change.

Carter McBride
Carter McBride, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,032
Experience: Adjunct Professor
Verified
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Customer reply replied 1 month ago
Carter, hope you don't mind if I follow back up on something now that I'm filling out the 1120S. You mentioned that I would add the $40k to the M-2. I'm assuming this would be on line 3 "other additions".
The line above it on the M-2 is "ordinary income from page 1, line 21". This ordinary income amount already has the $40k included because it's listed on page 1 line 5 (other income) of the 1120S.
My question is if you put it on M-2 as an 'other addition' would it not be counting the $40k twice? This is my first time making this 481 adjustment so thanks for bearing with me here.

Yea it is part of ordinary income. So you do not need to put it as an other increase.I just meant that it would show up on the M-2 through the ordinary income change.

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Customer reply replied 27 days ago
Perfect, thanks Carter!
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