Considerations:

• Do not use these steps if you closed two or more fiscal years with the incorrect account type.
• If you have not closed the year, or if the account needs to be changed from an asset to a liability, or from a liability to an asset, Refer to How do I correct a General Ledger account set up as the wrong account type?
• The solution below only applies if you have an asset, liability, equity, or suspense account that should have been an income or expense account and you have closed your last fiscal year while the account was set up incorrectly.
• If an account was incorrectly set as income, cost, expense, or other income and should have been an asset, liability, or equity account, refer to A General Ledger account type was incorrectly set up as an income or expense account when the fiscal year was closed.

Change the incorrect account type, close the proper amount to retained earnings and correct the balances:

1. Make a backup of your data before proceeding. See How to Back up Company data with System Administrator including SQL Replicator
2. Go to General Ledger, Tools, Options.
3. Select the Audit Setup Activity checkbox and click OK.
   • Note: Check the Print Audit Activity checkbox to generate a printout when you make changes. Refer to Why do I get an "Audit Print Selection" prompt?
4. Go to Setup, Accounts.
5. Click List, select the account with the incorrect account type and click OK.
6. Press TAB and select the correct Account Type such as Income, Cost, Expense, or Other income.
7. Go to the Balances (Accrual) or Balances (Cash) tab, depending on your Accounting Method.
   • Note: If you are using Both as the Accounting Method, change both the Balances (Accrual) tab and the Balances (Cash) tab. To view your accounting method, go to File, Company Settings, General.
8. Enter the amount you need to close to retained earnings in the Prior year's adjustment box.
   • Note: The prior year's adjustment should have the same sign as this account. For example, if the balance of the account is $500.00 (a debit), the prior year's adjustment should be a debit $500.00.
9. Correct the Current balance and the Future balance to reflect the adjustment. Do this by removing the amount that should have closed to retained earnings at year-end from those fields.
10. Click Save.
11. Click Close.
12. Reclose your fiscal year (Tasks, Close Fiscal Year). Only the accounts with an amount in the Prior year's adjustment box create closing transactions.
13. Go to Reports, Financial Statements.
14. Print a trial balance and roll it back to last year-end to confirm you made the proper corrections.
15. Go to Tools, Options.
16. Clear the Audit setup activity check box and click OK.
17. Your expense account should now be classified correctly, and your retained earnings account should contain the correct balance.

Update your default statements with account type change:

Note: Recreating the default financial statements overwrites any customizations you saved to the default designs

1. Launch Financial Statement Designer.
2. Go to File, Create.
3. Click Yes to every prompt.
4. Close all open windows.

If you use prefixes in General Ledger, verify that your base account is also set to the correct account type:

1. Go to Setup, Prefix/Base, Base Accounts.
2. Click List.
3. Select the base account that corresponds with the full account that had the incorrect account type and click OK.
4. Select the correct Account Type such as Income, Cost, Expense, or Other income.
5. Click Save.
6. Click Close.