adjustments via journal entires for previous years

sosos4you · ‎January 06, 2025

Hello Support and community,

I am using quickbooks online

I recently took over bookkeeping for a client who has had 3 other bookkeepers since 2021 (the start of her business).. I have found that over half of the entries during that time were improperly categorized.

In late 2021 my client purchased a home on 5 acres with the desire to turn the home into rental duplex and land into an orchard. The rental remodel took until early 23 to be ready for tenants.

The previous bookkeepers classified large quantities of Capital Improvements as expenses. (hundreds of thousand of dollars).

Large farm equipment was "expensed" rather than put into assets

Year end 2021 and 2022 JEs were made moving Owner's Investment into Retained Earnings (there were no earnings at all)

There are many other issues - however I main question is --

Can I make journal entries to previous years and date them as last day of the year in each of the years? So they will reflect on that years balance sheet.

i.e.

Can I Reverse the JEs for OI into RE and date them in the corresponding year?

Can I use journal entries to move expenses (a bulk amount) out of expenses into capital improvements?

I have manually (paper and pencil) corrected the entries and created spreadsheets with the correct data and submitted to my client's CPA - she has determined clients tax returns for the years in question need to be amended.

My main objective is to begin 2025 with as accurate of a balance sheet as possible via journal entries (that can hopefully be dated as year end in corresponding years.).

and

If this is possible how do I do it?

I am not closing 2024 nor will I begin 2025 until I determine if my quest if possible - If it is not. I may simply set up a new company and stat from scratch since the previous years are such a mess.

I have hard copies of detailed balance sheets, P&L and transaction reports for each year with all pertinent notations.

Happy New Year to All and thank you in advance for your feedback!!

Martella

Rainflurry · ‎January 07, 2025

@sosos4you

"Can I make journal entries to previous years and date them as last day of the year in each of the years? So they will reflect on that years balance sheet.

i.e. Can I Reverse the JEs for OI into RE and date them in the corresponding year?"

Are you asking if you can you make the journal entries (JEs) or how to make them? Yes, IMO, you can and should make the adjusting entries as of 12-31 in 2021 and 2022 with accurate notations of exactly why the entries are being made. Did you client pay for the property, improvements, and equipment personally? is that why there are entries to the owner's equity account which were then improperly reclassified to RE?

"Can I use journal entries to move expenses (a bulk amount) out of expenses into capital improvements?"

Yes. Again, I'm not sure if you're asking if or how. Your client's CPA should give you the proper adjusting entries to be made. You can do your best to reclass the expenses to fixed assets at this point and adjust as needed when getting the entries from the CPA. The entries aren't necessarily straightforward but, again, you can make the adjusting entries and adjust as needed after getting the final entries from your client's CPA.

sosos4you · ‎January 07, 2025

Thank You Rainflurry, your help is greatly appreciated. I would also like to know "how" to make the journal entries to past years - I suspect it is the same as any journal entry - however I would appreciate any tips being that my tasks are a bit out of the ordinary. Thank you sooooooo much for your time

Peace and Blessings

Martella

sosos4you · ‎January 07, 2025

Hello RaInflurry, yes all monies paid by client - cash - no mortgages, no credit cards: all expenses, land purchase and capital improvements = Owners investment -

Thank you

Martella

Rainflurry · ‎January 07, 2025

@sosos4you

To reclassify the amounts contributed to the business (the amount that was incorrectly classified to RE) back to the proper equity account, debit RE and credit the appropriate owner's equity account on 12-31-21 and 12-31-22.

To reclassify the expenses that should have been assigned to the fixed assets (capital improvements and equipment), debit the equipment and property fixed asset accounts and credit the same expense accounts that were used in 2021 and 2022 to expense the equipment and property.

Hope that helps.

sosos4you · ‎January 07, 2025

Hello Rainflurry, thank you for your prompt response and confirmation that I was on track

Peace and Blessings!!

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adjustments via journal entires for previous years