What should I review before signing a business return with large accruals?
A year-end accrual can move income or deductions between years. The owner should see the transaction support before approving the return.
Ask which transactions moved the result
A growing service firm reports strong cash collections but a much lower taxable profit after large year-end entries. Ask for a schedule of each material accrued revenue and expense item, with the customer or vendor, contract, invoice, amount, dates, and tax treatment. Compare the schedule to the general ledger and the prior-year return. An unexplained net accrual number is not enough to assess the filing position.
Under an accrual method, income generally is included when the right to receive it is fixed and the amount can be determined with reasonable accuracy. Expense timing has separate requirements, including economic performance. A book entry can be appropriate for financial statements yet fall in a different tax year.
Separate timing issues from corrections
Look at retainers, deferred customer billings, disputed receivables, bonuses, related-party charges, and work performed near the year-end cutoff. Trace a sample through signed contracts, delivery records, invoices, and subsequent payments. The tax result may differ by transaction; do not apply one generic rule to the whole accrual account.
Also ask whether this is an established accounting method, a newly proposed treatment, or the correction of a posting mistake. Some method changes require a formal process and may affect multiple years. The return preparer should explain which category applies and how prior-year balances reconcile.
Make the signing decision reviewable
Request a one-page bridge from book income to taxable income, a list of the largest timing items, and written answers to unresolved questions. AE can review the method and supporting workpapers before filing, then prioritize any adjustment or method-change analysis. Bring the current and prior returns, trial balances, contracts, A/R and A/P aging, and work-in-progress reports.
Primary tax sources
Related AE Tax guidance
Review Your Facts With AE
Bring the transaction documents and dates to a discovery call. We can identify the tax questions, records, and next steps for your business or property.