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Can we enter (adjust) the outstanding payable and receivable amount in to the retained earning accounts?

Kamran osman's Profile

adjusting journal entry for retained earnings


Ara Toroyan
Title: Director-Fin. Planning & Procurement
Company: NCCI Holdings, Inc.
(Director-Fin. Planning & Procurement, NCCI Holdings, Inc.) |

Only if this is a correction of a prior year that is being presented inteh comparative financial statement balance sheet. Otherwise the activity should run through the current P&L or the P&L of the prior year if presented.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

Adjustments to retained earnings can be made, i.e. "prior period adjustments." They are made at the beginning of the period. Adjustments are based on changes in accounting principles, changes in estimations, and errors identified. To implement any change you need to first determine materiality. I can't see the two accounts you mentioned as falling into any of the three reasons easily, but I do not know the details.

Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

Generally, no, unless they meet the requirements to be considered a "prior period adjustment", which is not common.

(Agent, JKS Solutions, Inc.) |

It would be great to have a little more information, but I'm guessing you are asking because you have some clean up balances that related to a prior year that you should have written off in the past but did not. Debit AP is usually a result of balances due from vendors that should have been reclassed to AR. Credit AR is usually a result of needing to refund a customer.

For AR credits, assuming these are valid client overpayments, otherwise known as balance due back to a customer, if you are in the US, you need to determine if you have unclaimed property items that need to be remitted to your local state government before you decide that you can keep the money. The appropriate solution is to refund your client or remit as unclaimed property.

However if these old AR balances are related to uncollectible revenue and not anticipated by the allowance for doubtful accounts, these need to pass through the current period as an adjustment to reverse revenue. These are usually immaterial compared to revenue in total. Keep a schedule of these for year end when the auditors request a schedule of all direct write offs and change in the doubtful accounts balance.

For AP balances that you want to adjust, call the AR department at your vendor and remind them that you are due a refund. Often you can get them to refund even if they are no longer a vendor. If they have remitted their overpayments received to unclaimed property you may be able to Reclaim the amount from your State by filing a "reclaim property" case. Otherwise, you will be stuck with writing off against expense.

Can't tell if any of this is related to your question but hopefully this goes into a little more detail for you.

I agree with the others, unless you are going to disclose a retroactive adoption of a new GAAP Standard, or change in accounting principle, or disclose a material error or irregularity that requires retroactive restatement, your only choice is prospective treatment = write off or recovery in the open current year.



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