Stupid Question #4,762 - Balance Sheet on a 1065

[TaxGuyBill]

I avoid Partnership and Corporate returns because I don't have an accounting background and the balance sheet gives me a headache.

I got sucked into doing a 1065 for a friend (first year Partnership with no real 'books') and I'm getting myself confused about the timing of income:

• Where do I put income that was received in 2023 (taxable income on the tax return) but did not clear the bank until 2024?  Accounts Receivable (line 2a of Schedule L) seems logical and makes it all look pretty except it is a Cash Basis business which makes it seem weird to me.  Or is it still supposed to go there?
  • I wanted to put it on Schedule M, but it seems backwards (at least in my extremely tired, non-accounting mind). 
    • The income was recorded on the tax return (Schedule K) so the words for line 2 of Schedule M makes sense.  Except that does the reverse of what I want it to do and throws Schedule L doubly out of whack. 
    • Line 6 of Schedule M makes Schedule L balance, but the wording seems backwards.
    • And if I use the "computed" Schedule M in ProSeries, anywhere I put it throws Schedule M out of whack.  Or am I not supposed to use the "computed" and do it on my own?

I would appreciate any input from you smart people.  😁

[rbynaker · Accepted solution]

Rule #1:  Start with a complete set of double-entry books.  Then the tax return is basically just data entry from the trial balance or BS/PL.

Personally, I avoid the insanity of accrual basis balance sheet meet cash basis tax return and the ridiculous M-x adjustments that entails.  Quickbooks can be set to print cash basis reports (even though it's tracking A/R).  It chokes on payments received before the invoice date though.  If you don't have that problem, cash basis QB reports are fine.  When I do have that problem, I have an Excel spreadsheet that will Accrual-2-Cash better than QB.

On your specific question, QB uses "Undeposited funds" for income received in 2023 that isn't in the bank yet.  I just add it to cash on the Sch L.  Just like adding multiple bank accounts together.

Rick

[Frustrated-in-IL]

Similar to Rick's suggestion, I would put it in other current assets as "undeposited funds" or just call it a transit deposit and include it in cash in bank.

[Frustrated-in-IL]

And by the way, at least stupid question #4762 is different from stupid questions #s 1-4761, which were all on W-2Gs not working.😋

[TaxGuyBill]

Thank you both!  I greatly appreciate it!

She didn't have real 'books' this year, but that is because I didn't explain things to her very well.  She is amazing with planning, record-keeping and numbers, so I'm sure that next year will be much easier.

[rbynaker]

---

@Frustrated-in-IL wrote:

And by the way, at least stupid question #4762 is different from stupid questions #s 1-4761, which were all on W-2Gs not working.😋

---

We have to count at least one of those for "It's 12:01am, why can't I efile yet?"

[rbynaker]

---

@TaxGuyBill wrote:

Thank you both!  I greatly appreciate it!

She didn't have real 'books' this year, but that is because I didn't explain things to her very well.  She is amazing with planning, record-keeping and numbers, so I'm sure that next year will be much easier.

---

Only if you have a good Balance Sheet to start with!  Spend the time now to get the activity into something.  I use an ancient version of QB, but maybe d/l into QB Online or if you don't want to pay Intuit, maybe try Wave or Xero.  Quicken can probably do the job but it would take a good bit of customization and it doesn't enforce double-entry bookkeeping rules.

[qbteachmt]

Just a comment; deposits/checks clearing or not doesn't relate to the income. That's just banking monitoring. The income is theirs (available), even if they put the check into a drawer and only make deposits once a month. Or, they keep cash in the back room and only make bank deposits when it gets to be a bit much. The same is true for their spending; don't rely on bank statements for the expense date unless everything is an electronic transaction. I can pay someone in cash out of petty cash, then later, refill petty cash and note this as the date of that expense and not be managing petty cash at all (I've seen this often). Or, mail a check, wait for the statement, use the statement date (via QB banking import) which has nothing to do when I incurred the expense; it is when my supplier finally made their deposit.