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ladybugfla
Jan 30, 2009, 01:13 PM
I have just discovered that the raw inventory amount reported on our balance sheet for 2007 was understated. I want the raw inventory numbers for 2008 to be correct. In order to correct this error I will need to increase my inventory. Can I do this, or do I need to amend my 2007 1120S? The adjustment will amount to >$20K. If I can make this adjustment through an entry, what will the offset entry be? Thanks for your help.
codyman144
Jan 30, 2009, 01:39 PM
I have just discovered that the raw inventory amount reported on our balance sheet for 2007 was understated. I want the raw inventory numbers for 2008 to be correct. In order to correct this error I will need to increase my inventory. Can I do this, or do I need to amend my 2007 1120S? The adjustment will amount to >$20K. If I can make this adjustment through an entry, what will the offset entry be? Thanks for your help.

When you use the inventory in question what account do you offset for it normally, an expense account? As far as GAAP is concerned you can make the adjustments on your books now. Nothing you can do about a mistake from last year you just discovered now so you can and should make the adjustment in this year.

As far as taxes you probably should amend the prior year return to show the additional income in last year. However, might decide you do not want to do that because then the owner will have to amend his personal return also. That is a hard call to make and I don’t want to tell you what to do. If you want to be totally safe amend the return.
muslimrao
Jan 31, 2009, 12:40 AM
Merchandise Inventory DR
Expsense and Revenue Summary CR

AS I THINK.. THIS SHOULD BE YOUR ENTRY !
codyman144
Jan 31, 2009, 12:46 PM
Merchandise Inventory DR
Expsense and Revenue Summary CR

AS I THINK.. THIS SHOULD BE YOUR ENTRY !

No if the inventory is sold for a profit the entry should be

Db Inventory
Cr Cost of goods sold

If the inventory in an expense of the business and not sold to customers the entry will be:

Db Inventory
Cr Some type of expense account (whatever expense the inventory normally goes to)

To credit straight to Income Summary is not the right answer, that isn't leaving a proper audit trail and losing detail on the financial statements.