Discussion:Credit balance of account receivable
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Discussion Forum Index --> Advanced Tax Questions --> Credit balance of account receivable
Discussion Forum Index --> Tax Questions --> Credit balance of account receivable
| 9 October 2009 | |
| IRS audit manager made adjustment based on credit balance of accounts receivable. He said that cash in clients pocket should be recognized on that year. He also indicated that the prepaid deposit form customer should be treated the same. I do not agree. | |
| October 10, 2009 | |
| Is your client cash basis or accrual?
If cash basis, I agree with the auditor. Think about the offset to get accounts receivable to zero - debit accounts receivable and credit sales (income).....I've seen many QB files where this is a problem. | |
| 13 October 2009 | |
| My client is accrual basis. How can IRS treated prepaid or customer deposit as revenue on accrual basis accounting? Also, for those account with returned merchanside, IRS also wanted to recognize as income. | |
| 13 October 2009 | |
| Is there an obligation of the client to return the customer deposit (the cause of the credit AR)? If the client must return the funds if the transaction is not completed then I would say the client has a prepayment - for example, if I place a deposit on something and say.... have 30 days to change my mind & receive the item after the 30 day period. If the year end falls in the 30 days, its a liability. | |
| 13 October 2009 | |
| For future reference, I would make sure to reclass a negative asset to a liability account such as deferred revenue/customer deposit, etc. May save you some grief in an audit, but I'm probably just pouring salt in your wound. | |
| 13 October 2009 | |
| That makes sense, but if it is a liability its a liability and it shouldn't matter if its on the balance sheet as a "negative" asset. Sounds to me like the agent may be a bit green. | |
| October 13, 2009 | |
| There surely are a lot of very odd posts re: audits of late, on really elementary things we learned in Acct. 101! I do agree that it's better form to make an adjusting entry at year end to clear out the upside down AR to a Customer Deposits account for clarity and for sending to banks, etc.
It might all just be part of the new, 'we've already spent a ton of money that we don't have, so you need to send it in' program. | |
| 15 October 2009 | |
| I wouldn't put this issue on the agent. I'm certainly not one to defend the IRS, but questioning a negative amount shown on a balance sheet seems perfectly reasonable to me. If it is a liability, show it as such and the question won't arise. | |
| 15 October 2009 | |
| If the situation is as you present and the IRS agent made the final decision, you should appeal it. I don't think anyone reasonable, agent's manager, would agree with such a decision. | |
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