USA Long Term Liability amount incorrect

[Cooper1]

My question is what to do when the actual amount of a long term liability does not match the books. I paid off the long term liability loan but quickbooks is still showing an amount. Do I make the adjustment to retained earnings?

 

[kirby]

No. Possible reasons.
1. QuickBooks showed the full amount payable over time and the payoff was for a lower amount based on present value. In such case, difference goes to P&L.
2. There was no early payoff. So the amount that was on QB was incorrect. Again you need to adjust the difference to P&L.
Anyway - there is no direct entry to retained earnings

 

[Cooper1]

The reason is #2. Wouldn't I debit the long term liability, and what account would I credit? Thank you so much for responding!!

 

[kirby]

Let's say on your books Long Term Debt has a $200,000 balance. Then you find that's wrong and should be $180,000 so you actually pay $180,000. You then DR LT Debt for $180K and CR Cash $180K. Now, LT Debt still has a balance of $20K Credit.
So you need to DR LT Debt for $20K and offset (post a CR to a revenue acct) to P&L. Use an Acct like "Miscellaneous Income" for the $20K credit. It is the correction of an error that happened somewhere during the life of the debt. But anyway do NOT adjust retained earnings directly.

 

[Cooper1]

You are wonderful, thanks so much!!

 

[Eddy Yin]

What was the correct answer for Cooper1 question??
An accounting error should not result in a gain or loss in the books.
we must go back and find the reason for the difference and make the
proper correcting entries.