I have an interesting situation with a S-Corporate return prepared by an accountant. The company keeps its books in Quickbooks, and they do their accounting and report taxes on a cash basis. The accountant is taking the position that Quickbooks' cash-basis balance sheet incorrectly shows entries for Accounts Receivable and Accounts Payable - which are strictly speaking Accrual concepts. So he is preparing the return as follows:
1) He takes the Accrual balance sheet from Quickbooks and enters that in Schedule L2) He takes the cash basis income statement from Quickbooks and enters that in the income part of the return
3) He then reconciles the accrual to cash conversion of net income with a line in Schedule M-1While it might be a purer way to do things, it does make it harder to verify the return, and requires some extra work for the company.
My questions are:
1) Does anyone see a problem with preparing the return this way?2) Is there a strong reason to not just use the Quickbooks' cash-basis balance sheet, and just allow it to include the Accounts Payable and Accounts Receivable entries? It would certainly make it easier to read and verify the return against the books. And from what I understand the IRS doesn't pay much attention to Schedule L in any case, so probably the cash-basis balance sheet would pass.