Refund After Taxes Were Prepared.

Question:

How do I adjust an amount for a prior year? For example: I bought a fax machine in 2003 and then I returned it. However; in 2004 I got a refund for the machine but I didn’t adjust the office supplies account in 2003 and the taxes have been filed. I would appreciate a tip on how to handle this kind of transaction.


Answer:

The following answer assumes that you are on an accrual basis. Technically, the IRS would say you should file an amended return. Assuming that we are talking about a $100 fax machine, and not a $50,000 truck then I would say that you could handle it in the current year without drawing the ire of the IRS. If the fax machine was put in office supplies expense as you say, then the answer is easy. You should record the refund as a credit in the office supplies expense account.

If the fax machine was capitalized by your accountant when preparing the tax return, then it would be more difficult. If this is the case you should probably check with him/her.