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cwp3 · Jul 4, 2012, 12:32 PM

After my business was audited there seemed to have been quite a few errors in the recording of my transactions. There were differences in some asset, revenues, and expense accounts. There were also additional expenses and revenue incurred that were not recorded. Additionally, the information from the previous year is unavailable as the accounting software filed got deleted from the system. I would like to adjust my year end retained earnings balance to be in line with the auditor's balance. How do I go about doing this? Additional expenses would be debited, but what would the other half of this journal entry be?

paraclete · Jul 4, 2012, 04:12 PM

Originally Posted by cwp3

After my business was audited there seemed to have been quite a few errors in the recording of my transactions. There were differences in some asset, revenues, and expense accounts. There were also additional expenses and revenue incurred that were not recorded. Additionally, the information from the previous year is unavailable as the accounting software filed got deleted from the system. I would like to adjust my year end retained earnings balance to be in line with the auditor's balance. How do I go about doing this? Additional expenses would be debited, but what would the other half of this journal entry be?

You need to think each circumstance through, if revenue was missed this should mean receivables were understated if expenses were understated it should mean payables were understated,

You need to analyse the nature of each error

cwp3 · Jul 5, 2012, 12:00 PM

Originally Posted by paraclete

you need to think each circumstance through, if revenue was missed this should mean receivables were understated if expenses were understated it should mean payables were understated,

You need to analyse the nature of each error

What if there is no information available to analyse the nature of each error?
There are only the year end balances; all prior information was deleted/destroyed.
Could you please be more specific as to the entries needed to correct the errors?
For example, additional office expenses not included in the company's reports but found on the auditiors financial statement, I know the expense account should be debited but what account should be credited? Will it not ultimately affect the retained earnings account? Crediting the retained earnings account would increase it when we want to decrease retained earning as there was an additional expense.
PLEASE HELP!

paraclete · Jul 5, 2012, 02:29 PM

Originally Posted by cwp3

What if there is no information available to analyse the nature of each error?
There are only the year end balances; all prior information was deleted/destroyed.
Could you please be more specific as to the entries needed to correct the errors?
For example, additional office expenses not included in the company's reports but found on the auditiors financial statement, I know the expense account should be debited but what account should be credited? Will it not ultimately affect the retained earnings account? Crediting the retained earnings account would increase it when we want to decrease retained earning as there was an additional expense.
PLEASE HELP!

I'm sure your auditor would be much more helpful than just telling you there was an error if you asked. If they found an expense account was understated they must be referring to a specific transaction. Are you saying the auditor produced a set of financial statements? Then there are underlying work papers.

Expenses usually affected the retained earnings account. However if you have the year end balances you have the starting point for the coming year