How to adjust incorrect payment received in prior year

Hello Apples521,

It's great to see you in the QuickBooks Community! For a situation like this, I highly recommend connecting with your accountant, as they will know the best practices for your company. However, if you don't have an accountant, no worries! You can use our ProAdvisor service to connect with experts in your area. Simply enter your zip code, browse through the options, and choose one that fits your needs. Please note that many of these professionals offer a free consultation! Use the link below to find out more.

• ProAdvisor Service

If you need any further assistance, please let us know. My team and I are here to help! See you around.

@Apples521 

Are you saying the payments received in 2022/2023 were never actually received, or were they recorded incorrectly in QB?

From my understanding the payments were never received in 2022/2023.  The retention check just received in Jan 2025 closes out the job as paid in full.

@Apples521 

Just to confirm: the $4,500 retention check was received in January but you have no open receivable to apply it to and already recognized the income, correct?

If I'm understanding that correctly, how was the bank account reconciled back in 22/23 if $4,500 was deposited in QB but was never on the bank statement?  Somehow $4,500 must have been removed from the bank account in 22/23 to get it to reconcile.  Whatever account was used on the adjustments to get the bank account to reconcile is over/understated by $4,500 and should be assigned to the $4,500 retention check received in January.  Make sense?       

So in mid 2024 a CPA came in briefly and made some large general entries to clear a bunch of stuff out and get the bank account to balance as of 12/31/2023 in order to have a place to start moving forward in 2024.  The bank has been reconciled montly since June 2024 I believe.  It's also entirely possible, even likely that the payments were not actually even received in 2022/2023, but just recorded as such in QB.

Since the bank currently balances and assuming there's no other place for those 2022/2023 payments to go, what do I do with this payment received in Jan 2025?  In order for it to not hit sales, the only other entry I could think of is against retained earnings, but I know that bring questions from the CPA come year end and I'm not sure that's the best way to handle this.  But I'm stumped otherwise.

@Apples521 

"It's also entirely possible, even likely that the payments were not actually even received in 2022/2023, but just recorded as such in QB."

If the payments were received in 22/23, then this is presumably income because there's no open receivable. If both the 22/23 payments and 25 payments were retention, shouldn't it be relatively easy to determine whether the retention amount should have been +/- $4,500 or $9,000 based on the job?

"Since the bank currently balances and assuming there's no other place for those 2022/2023 payments to go, what do I do with this payment received in Jan 2025?"

If the payments weren't received in 22/23 but were recorded as received in QB, then posting it to retained earnings (RE) makes sense (with good notes to explain).  The CPA will surely see the $4,500 change in RE and can determine the most appropriate adjusting entry from there.  The other option is to post it to Ask My Accountant (expense).  That's may or may not be an option depending on how you want the P&L to look.  Either way, the CPA will ultimately have to make the adjusting entry.  Just my $.02.