Solved: How do I reconcile Quickbooks net income with Turbotax net income?
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How do I reconcile Quickbooks net income with Turbotax net income?

I have an S-corp using cash accounting.  My beginning inventory for 12/31/16 was $ 8,468.  I don’t use quickbooks inventory for tracking purposes and my physical count of inventory on 12/31/17 was $ 15,582.  I created a journal entry ( $ 7,114) to adjust year end 12/31/17 inventory to the new amount $ 15,582.

My Quickbooks P&L shows a COGS of $ 33,795.  Turbo Tax subtracts the $ 7,114 increase in inventory from my COGS making my Turbo Tax COGS $ 26,681.  Since this decreases my COGS my Turbo Tax Net Income goes up by $ 7,114, to $ 16,660. 

During the Reconciliations and Balance Sheet step of turbo tax (my state requires a balance sheet for tax purposes)  the two items that keep my book income from being equal to my turbo tax income are the     $ 7,114 inventory difference and a $1,508 disallowed meals & entertainment deduction. 

Turbo tax automatically inserted the disallowed meals deduction on the 1120S Schedule M-1 worksheet and my question is do I enter the inventory adjustment $ 7114 as an expense item on the M-1 worksheet? Turbo Tax gives you a step to enter what it considers uncommon book/tax differences.  Is this where I should enter the $ 7114 inventory adjustment?  And, what description should I enter for it? 

Why does turbo tax consider this an uncommon difference?  I would think any increase in inventory over prior year end that is still in stock would always cause this situation to occur and there would be a line item to reflect this difference on the tax forms.


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How do I reconcile Quickbooks net income with Turbotax net income?

No, do not enter your inventory adjustment as an uncommon difference on the M-1 worksheet.  You need to go back to QuickBooks and reduce your COGS by the $7,114 inventory adjustment.  Go back to your Journal Entry where you made the adjustment to increase inventory by $7,114 and make sure the other part of the entry is reducing COGS.  This might require that you create a new General Ledger account called something like "Increase/Decrease in Inventory".  That will reduce your QuickBooks COGS to $26,681 to match Turbo Tax.  The only M-1 adjustment will be the disallowed meals & entertainment deduction.

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How do I reconcile Quickbooks net income with Turbotax net income?

No, do not enter your inventory adjustment as an uncommon difference on the M-1 worksheet.  You need to go back to QuickBooks and reduce your COGS by the $7,114 inventory adjustment.  Go back to your Journal Entry where you made the adjustment to increase inventory by $7,114 and make sure the other part of the entry is reducing COGS.  This might require that you create a new General Ledger account called something like "Increase/Decrease in Inventory".  That will reduce your QuickBooks COGS to $26,681 to match Turbo Tax.  The only M-1 adjustment will be the disallowed meals & entertainment deduction.

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How do I reconcile Quickbooks net income with Turbotax net income?

Will "Increase/Decrease in Inventory" be an asset account?
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