multiple equity balances

How the equity accounts for a SP/LLC are setup are usually personal preference. Most of my clients have accounts to reflect Draw vs Contributions plus Retained earnings. In your case someone is using the earnings account in place of R/E when they don't need to.

Ditto with closing out the year. Some do not bother while other close everything to R/E. Most close on 12/31 but I have one CPA who instructs her clients to close on 1/1 of the following year. That makes the balance sheet at 12/31 match the tax return. All that closing does is allow you to see the current year's transactions. If you don't you have to do the math to see the current year's amounts. It is still equity so it really does not matter whether the accounts are closed or not.

The first thing you should do is to make sure the transactions in the Draw & Contribution accounts are recording the proper transactions. I would also run the balance sheet at 12/31 and 1/1 so that you can see which account QB is internally using as Retained earnings. If you want to show the years closed then edit the closing transactions to point to the correct R/E account and date.

The total equity will not change nor does it impact the tax return so I am not sure if too much effort really needs to be expended on this issue. You mention fraud...I would concentrate on that issue instead.

Assuming the client is a sole proprietor (Can't tell - ignorant owners? or owner's equity?) make a journal entry Jan 1 and close out all the equity accounts to capital or capital accounts. If a partnership return is filed then compare capital account balances in QB with 1065.

I'm glad you are dealing with the Foo Bar books and not moi. So thank you.

Fair enough, since the equities are all continually negative anyway. (i.e. drawing more than they ever put in, if any)

Wouldn't that make the statement of cash flows incorrect?

I only meant he was a fraud as far as passing himself as an accountant. But the complete lack of internal control is another issue whose consequences eventually will need to be addressed.

Thanks, it's actually a partnership.

Yeah, I'm afraid this is just the tip of the iceberg. There's also $200k in uncleared transactions going back to 2005, and all the bank accounts are negative on the balance sheet. And our douchebag of a CPA only encouraged this by happily accepting our worthless books (with the nice disclaimer on the return waiving all responsibility), while billing anything that moves. In comparing last year's return with the financials we submitted, it seems they've just been adjusting the asset account balances (i.e. from bank to inventory) to make them non-zero, and that was the extent of their accounting "services." (for which we were paying

9k per year) I know for a fact that the inventory is bogus, because no one here even knows how to enter items correctly in QB.

Not necessarily. It depends on how you have set up your statement of cf mapping. Your equity accounts should be under Financing so these reclasses will show up as a credit and a debit--not impact to the bottom line.

There are a lot of bookkeepers that are useless too. Not necessarily fraud...just incompetent.

Based on your other comments...I think you have bigger issues than worrying if these reclasses impact the CFS. Right now I suspect that all of your financial reports are meaningless.

If your current file is total garbage, you might think about starting a new file as of 1/1/10 and reconstruct 2010 from scratch.

I wonder if we have the same CPA. Mine can't get depreciation correct and invented liabilities instead of balancing the equity accounts. As here, this is just the tip of the iceberg. Having to amend 3 years of taxes because of this incompetence.

I understand that it doesn't affect the total equity, but it would still be annoying to have to adjust the statement every time to show the correct period totals.

My initial impression is that he was honest, i.e. enough to at least refrain from embezzlement, but that he had just became (unbelievably) lazy and careless once he realized that no one was checking on his work. Yeah, and I really don't think he knew how to use QB for s--- either. He was quite fond of creating elaborate manual reports in Excel which merely confused the owners instead of impressing them, when the same (if equally worthless) report could be pulled up in seconds on QB.

But if there's anything I've learned in business, is not to give ANYONE the benefit of the doubt where money is involved, so the fact of his integrity remains to be seen.