USA Old bills over paid...


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Hello --

In trying to clean up some old books I saw a negative total on A/P on a non-profit's balance sheet that slowly increased over three years. (2015-2016-2017) -- though the company pays their bills immediately. I found the source for one of these and indeed it was an AP account overpaid -- entered without the benefit of going against a bill. It would be very time consuming at this point to find the sources. I posted an adjustment to Retained Earnings to write these off but is that the right thing to do in this case? In the current year it would have been easy to correct. But for closed years would I have had other choices? 3 years after the fact I could have created a bill for the one overpayment I found -- but where and when would I put it since the 990 is long filed. If there's a good way to do this I'd actually go look for the others. This kind of thing drives me crazy.

Thanks for your help...
 
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kirby

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Adjustments need to be made to current year unless the adjustment is so material that a prior period adjustment is needed.
 
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Thank you Kirby. So if I understand you correctly, the company has to be willing to take the correcting charges currently then -- which explains why I have found this on a occasional basis in various places -- old receivables or payables just sitting there that have never been cleared out. But that brings me to the reason that this is in taxes -- If it were the case that I was changing something in an already filed tax year -- how would I notate it for future ref? And where would it be posted (sounds like Retained Earnings isn't a great idea...)?
 
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kirby

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Let's look at the underlying philosophy here:
First is - the materiality of the error found - if it is so big a prior period adjustment to retained earnings is needed then a correction to the 990 tax filing should also be considered.
If it was not so material, now you have more of a judgment call - particularly for a form 990, where the entity is nontaxable. The point is, if there is no tax effect then is there a point to the time and expense of the amended return? Management should decide this.
And there is a view that if a non material error is found in year xx, then it is an event of year xx. Meaning although it was there in prior years it is an element of the year it was discovered, again given it was not material.
Also, at some point your tax year 2015 will move past the 3 year statutory review limit. This is neither here nor there if mgmt wants absolutely correct 990 filings but again is a judgment call item for consideration.

Where do you post the correction to P&l? You reverse the original entry.
 

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