Accounting question

[helow]

The net income reported on the income statement is different from the one on the BS for this S Corp! Can this happen?

Thanks

Helow

[RoyDaleOne]

Yes.

[helow]

How and in what circustance? I learned that the net income on the IS follows through to the BS?

Thanks

[kcjenkins]

There may be a number of reasons. For example, some 'expenses' may not be fully deductible, such as meals. Some expenses may be taken for tax reasons, but not for accounting reporting, such as §179 deduction. Just to mention the two easiest examples.

[helow]

There may be a number of reasons. For example, some 'expenses' may not be fully deductible, such as meals. Some expenses may be taken for tax reasons, but not for accounting reporting, such as §179 deduction. Just to mention the two easiest examples.

If the financials are prepared using US GAAP only, ignore the tax part, can the net income reported on the IS be different from what is on the BS?

I have the following Financials Statements:

2006

Capital.............................................................1,000

Beginning Equity.............................................68,301.19

Stockholder's Equity.......................................(66,214.89)

Net Income.................................................... 3,985.50

The net income report on the income statement is $9,302.50, more than what is reported on the BS (5,317)

2005

Capital.............................................................1,000

Beginning Equity.............................................43,801.12

Stockholder's Equity.......................................(49,929.41)

Net Income....................................................19,183.07

The net income report on the income statement is $24,500.07, again more than what is reported on the BS (5,317)

2004

Capital.............................................................1,000

Beginning Equity.............................................29,997.74

Stockholder's Equity...................................... (17,881.00)

Net Income....................................................12,890.31

The net income report on the income statement is $18,207.31,again more than what is reported on the BS (5,317)

I took the 2006 IS and BS figures and entered them as Beginning balance in Peachtree, selecting period 12/1/06 - 12/31/06 (Not sure If I need to select 1/1/2007 - 1/31/2007). Once I have entered the beginning balances and the income statement figures, I could get the net income of $9,302.50 but my trail balance was out of balance by $4,230.70. The net Income of $9,302.50 is what is appears on the 1120S as Ordinary Business Income. When I hit OK, Peachtree adjusted the beginning balance "to keep me in balance"! When I hit OK, it wiped out the Begining Equity of 68,301.19 and replaced with (4,230.70) and net income was zero!!!!!!!!

Can someone please help me with the above issues.

Thanks

Helow

[helow]

Anothe question,

Does ATX support Peachtree?

[RoyDaleOne]

Why do you not have the original trail balances for each year?

[joelgilb]

Why do you not have the original trail balances for each year?

Good Question. Getting those may resolve your issue. If the Trial Balance is in balance, you should be able to see exactly how the numbers flowed.

Who prepared the previous years statements?

And if someone else prepared the prior years, and you have a BS for 2006, why are you trying to recreate history with what appears to be incomplete data?

Are you aware or concerned that the prior acct had errors in the work they did?

And the BS you show above only includes Liab & Eq. Is it in balance with the Assets?

[joanmcq]

Did they use Quickbooks?

[joelgilb]

Did they use Quickbooks?

<=== Intuit Hater

If they did, that would explain a lot!

[joelgilb]

... I took the 2006 IS and BS figures and entered them as Beginning balance in Peachtree, selecting period 12/1/06 - 12/31/06 (Not sure If I need to select 1/1/2007 - 1/31/2007).

Also:

Why would you enter both the BS and IS in Peachtree? Seems to me this would cause some of the problems you are having with the income being out of balance, as the income should already be in the Retained Earnings and/or Current Year Income on the BS you are entering into Peachtree.

[helow]

Sorry, I had to get out of the office for

I don't know which software the previous accountant used but I am using Peachtree. I think the financials are not accurate. The trail balance is out of balance and I cannot understand how begining equity, which I think means R, is increased by the 2005 income of 24,500.07. What would you do if you were me? I see that these numbers does not make sense and am not sure if I can ignore them. This is a new client for me (an S Corp) and I am already getting headaches. I am doing all 2007 accounting and have to also do the 1120S, K1 etc. How can I enter the beginning balances in Peachtree (First time I am using this tool) What would I do the differences shown in the trail balance.

2006

Capital.............................................................1,000

Beginning Equity.............................................68,301.19

Stockholder's Equity.......................................(66,214.89)

Net Income.................................................... 3,985.50

Thanks much

Helow

[RoyDaleOne]

I would create a general ledger with an opening balance sheet as of 01/01/2007 that contains the balance sheet only from page 4 of the 2006 1120S.

Enter the 2007 transactions into the journals for 2007.

Unless, the client authorizes you to investigate 2006 or prior and agrees to pay for the work you are wasting your time.

Keep the client in compliance for 2007 and forward.

[joelgilb]

I would create a general ledger with an opening balance sheet as of 01/01/2007 that contains the balance sheet only from page 4 of the 2006 1120S.

Enter the 2007 transactions into the journals for 2007.

Unless, the client authorizes you to investigate 2006 or prior and agrees to pay for the work you are wasting your time.

Keep the client in compliance for 2007 and forward.

Good Answer.

[helow]

Thanks all. Really appreciate your help.

Helow

[joelgilb]

Thanks all. Really appreciate your help.

Helow

did we provide a solution?

[kcjenkins]

And remember, you never 'enter' the net income or loss, that is 'calculated'. You enter the income and the expenses, and net income or loss is then computed by the software. And all you enter into the books to start are the assets, liabilities, and capital invested. Retained earnings is then calculated by the program. If you were trying to enter that, no doubt that is what made the program zero out.

[helow]

did we provide a solution?

Yes, you have. Thanks, you guys are great.

Helow

[SeattleCPA]

The net income reported on the income statement is different from the one on the BS for this S Corp! Can this happen?

I didn't see this listed in your thread but another reason the two values could differ is that if you're talking about the balance sheet in Schedule L on the 1120S and then the taxable income number on the face of the 1120S, remember that the Schedule L values are the "book" numbers.

Your M-1 should reconcile the book income to the taxable income of course... but the first time I encountered this (and I don't encounter it very often) the book versus tax thing caught me offguard...

[helow]

In Peachtree, do you set Stockholder's equity account for one person S corp? I have CS, Paid in Capital and RE.

Thanks

Helow

[helow]

Another question. How do you calculate Property distribution in line 16d (1120S) or Sch K-1 Would salary paid to a shareholder who owns 100% of stock in an S corp be considered as property distro.

Sorry, this is my first time I am doing an S corp so I do apologize for these basic questions.

Thanks

Helow

[bay]

salary paid to the shareholder would be deducted on page one of the 1120S under officer salary- assuming it was actual w-2 income with payroll deductions, etc.