I am presenting a scenario that I have come across in real life and was hoping you can shed some light on how we should treat this
The auditor has picked up the incorrect treatment of a refund which was received from the bank due to overpayment of charges in the past. The local accountant posted the following journal
Debit Bank £10,000
Credit Prepayments (should have been P&L) £10,000
In preparing the financial statements the auditor has picked up this mistake and performed the “fix” and so posted the following correcting journals when calculating the taxable profit
Debit Prepayments £10,000
Credit P&L Bank charges £10,000
Now the problem is the retained earning c/fwd into this year on the books differ to the retained earnings c/fwd as per the financial statements as the auditor has included the credit to bank charges when preparing the FS
My question is how do we get the retained earnings showing on our system in sync with the retained earnings on the financial statements?
Do we post the following journal in this years books?
Debit P&L £10,000
Credit Retained Earnings £10,000
Please help so confused!!!