How do I correct an expense account error from a previous year?

Forum|Forum|3 years ago
February 1, 2023
2 replies
16 views

We are an auto repair shop. We purchased a used truck in 2021 to be repaired and resold. Our employee placed all the parts bought into the Cost of Good Sold account. These parts were purchased in 2021. He thought it would be billed out by items on an invoice at the time of the sale. The truck was sold in 2022. An accountant told us these parts should be put into a Truck Expense account instead of Cost of Goods Sold. We just found the error by doing year-end. How can we correct the mistake since it is in two different years and reverse this to reflect the amount spent on the truck? Any help would be appreciated. Thank you.

QuickBooks Desktop

Rainflurry

Level 11

@Emmakay

You mentioned the parts were booked to COGS in 2021, but how was the purchase of the truck recorded? Was it put into inventory or into another asset account? Or, was it also recorded as COGS? Has the shop filed its 2021 tax return? Since you mentioned COGS, presumably the shop uses accrual basis accounting, yes?

Assuming the shop has filed its 2021 tax return, and the parts were recorded to COGS in 2021, you can't move that expense to 2022 because you took that deduction on your 2021 return. The same with the truck if it was recorded to COGS when purchased.

The proper way to record that (assuming the shop is on accrual basis) was to record the truck purchase, and the associated parts to get the truck ready for resale, to inventory in 2021. There should have been no expense recorded in 2021, both the truck and the parts should have been recorded as COGS when the truck was sold to your customer in 2022.

EmmakayAuthor

Thank you for your reply. We are on an accrual basis and the truck was recorded as a fixed asset. The parts were recorded as non inventory items in COGS. The 2021 taxes have already been filed. So this cannot be corrected in any way?

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