QuickBook Errors Prior Period Balance Discrepancies
Prior Period Balance Discrepancies
Errors & Symptoms
- Users record, modify, delete and void transactions in accounting periods for which tax returns have already been prepared and filed
- Ending balances used by the tax accountant have changed from year to year
Often, clients make changes in their QuickBooks file to prior periods and are not aware of the affect these changes have. When tax returns have been completed and filed, prior period adjustments must be handled carefully and cautiously.
QuickBooks provides tools for not only preventing changes to prior periods, but also finding them easily. The Troubleshoot Account Balances tool in the Client Data Review identifies these transactions quickly.
Troubleshoot Account Balances
The first year the Client Data Review is used, will require the Ending Trial Balance from the prior period’s tax return or financial statement be entered. When the Client Data Review is started in future periods, the prior information is populated in the Last Review Balances column as long as the review takes place in the client’s file. After entering the Trial Balance from the previous period, the Difference column calculates the entry that needs to be made to adjust the account balances back to the last reviewed balance. The transactions that contributed to the balance discrepancy can be reviewed by double clicking on the difference in blue and using QuickZoom to open into the discrepancy. Alternatively, the View Changed Transactions at the top of the window can be used to generate a report of the transactions that contributed to the discrepancy. Once the differences have been reviewed and the adjustment proposed to adjust the prior ending balances to the prior trial balance, then select View Suggested Adjustments.
After selecting View Suggested Adjustments, the Make Journal Entries window opens. The Adjusting Entry box is checked with the journal entry date being the ending date of the prior period. Note that in this example, part of the adjustment is to Accounts Receivable. Therefore, a customer must be entered in the line of the journal entry similar to “CPA adj”. Once the adjustment is entered correctly, select Save & Close.
Once the Adjusting Journal Entry is saved, the following message appears:
Choose View Suggested Reversing Entries if any part of the entry should be reverses on 1/1 of the following year. If there are certain accounts to remove or add to the reversing journal entry, these can be added once the journal entry appears. Then choose Save & Close on the reversing entry. If you prefer not to reverse the entry at 1/1, then choose Don’t Reverse.
As each task is completed, the status can be changed from Not Started to In Progress or Completed within CDR.
Additional Reporting to Help Troubleshoot Beginning Balance Changes in Quickbooks
QuickBooks provides several reports to assist in troubleshooting beginning balances when the problem cannot be identified through the Client Data Review tool. Each of these reports can be found by selecting Reports, Accountant & Taxes and choosing a report that will best troubleshoot the problem in the beginning balance discrepancy.
Audit Trail Report
The Audit Trail Report lists all transactions entered and the complete history of changes, deletions and /or voids to those transactions. If a client makes a change to a prior period transaction, the Audit Trail Report will show the changes.
The Audit Trail Report can be filtered based on a number of different criteria. To filter this report, select Export from the report window and select the Advanced tab of the Export Report window. Then check the box labeled Auto Filtering as shown below. With Auto Filtering turned on, each column can be filtered to only show transactions that match the criteria chosen.
NOTE: The Audit Trail will only show “who” did what, provided that your client has set up a unique User ID for each person entering transactions into QuickBooks. If every person is sharing the same User ID (which is not recommended!) the Audit Trail will simply show a list of the transactions and changes to the file, but not “who” made the entries.
Closing Date Exceptions Report
The Closing Date Exceptions Report shows modifications or transactions entered dated on or before the Closing Date. Similar to the Audit Trail Report, the current status of the transaction as well as the original transaction are shown. The transactions that might need to be reversed, or adjusted, to get back to the correct balances are shown.
NOTE: This report will only show data if a Closing Date has been established, and if entries or changes are then made to those closed periods. Also –only changes made after the Closing Date has been established are tracked. If changes are made to an open period, and then a Closing Date applied, the changes made before establishing the Closing Date are not tracked. For this reason, it is best practice to close periods regularly and set a password for each period. However, the Audit Trail will record all transactions regardless of closed or open status for each period.
Voided/Deleted Transactions Report
QuickBooks creates an activity log of all voided and deleted transactions. This report is not dependent on the Closing Date because QuickBooks tracks the activity whether or not the transaction is dated in a previous reporting period.
To display more information about a transaction on this report, double-click on the transaction. QuickBooks will then display the impact of the original transaction on the General Ledger.
Retained Earnings Quick Report
In QuickBooks versions since 2005 the detail of transactions posted to Retained Earnings can be viewed. Select the Lists menu > Chart of Accounts and then double click on Retained Earnings account.
Identify entries made in error to the Retained Earnings Account. Double click on an entry to edit and correct the account assigned.
Working Trial Balance
Entries can be made through the Working Trial Balance in the Client Data Review Tool as journal entries, you can then enter all of your adjustments through this screen. You will be able to:
- See your client's net income at a glance after each adjusting entry
- Review transactions in your client's accounts, including the Retained Earnings account.
- Enter adjusting journal entries
- Enter Workpaper References for account adjustments
Edit transactions or make adjusting journal entries from this window. Select Make Adjustments to open the Make General Journal Entries window.
QuickBooks defaults this entry as an Adjusting Entry so the entry will appear in the Adjustments column on the Working Trial Balance window. Selecting a time period in the Make General Journal Entries screen will show a list of all journal entries and indicate if the entry is an adjusting entry.
Set Closing Date and Password
Setting a closing date and password so that changes are saved and cannot be undone without the user knowing the password is strongly recommended. Even if the client knows the password and makes changes after the data file is given back, the Closing Date Exception Report records any changes the client makes, as long as the closing date password is set. When selecting this line item, the following window appears:
Select Set Date/Password in the Accounting section on the Company Preferences tab, then enter the Closing Date and Closing Date Password where prompted.
Some tips to remind clients of the severity of making changes to a closed period are:
- Make the password your name
- Make the password your phone number
- Make the password a dollar amount such as $500 to represent the cost to the client to fix or file an amended tax return if unnecessary changes are made to the prior year.