Ask the Accounting Community

Hi,

We are a 501c3 and wrapping up our audit for 2025 and our auditors are proposing an entry to fix our retained earnings balance. This seems to have stemmed from 2 issues. 

1. QBO creating a system generated entry to open equity balance, every time we deactivate a card for a termed employee. We've cleaned this up by using the open equity balance and retained earnings balance. This fixed a portion of the issue above.
2. Credit card liabilities. I believe at some point these may not have been set up correctly. We have 2 main credit card accounts and multiple sub accounts for each card holder. Monthly JE were created to move credit card payments from one main account to the other. All expenses were going to the sub accounts. The balances for all cards continued to accumulate over the years. We entered a correcting entry to fix this, so that we can begin using the "pay down credit card" feature in QBO. This also fixed a portion of the retained earnings discrepancy. 

Approximately $10.5K variance remains in our net assets/equity that I can't place. Our auditors are recommending an entry that impacts uncategorized expenses because "they are not sure where else to put it." All credit card expenses hit the income statement and we reconcile monthly. I don't think this the auditor's recommendation is the correct fix and that it is also attributing to an audit finding for the expense accounts. The problem is, because I can't nail the issue down, I'm not sure what entry makes the most sense.

Any advice would be greatly appreciated. 

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Ericha Hernandez
Director/Manager
Zebulon NC
United States
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NEVER NEVER NEVER book ANYTHING to Retained Earnings in QBO. If you MUST adjust RE, create an account called RE Adjustments and use that. I had a similar client who had a lingering issue with RE. Each year, their tax accountant would book an entry to RE to correct the beginning balance being off from the previous year's ending balance. I tracked down the cause of these adjustments and it stemmed from their 1st AJE. When I moved that AJE to the RE Adjustments account, the problem fixed itself.

Also, the Pay Down Credit card feature is extremely limiting. PLEASE contact me and I will discuss my best practices with you regarding credit cards in QBO.

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David Belnap, CMA, CSCA, CPA
David.Belnap@...
Pembroke Pines, FL
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