Before you proceed with the solution below, verify you have a current and complete backup of your entire data folder. Furthermore, verify that you have no prior year adjustments, or that you have already closed your prior year adjustments to your retained earnings account. See the article 58846 "DocLink: How can I confirm if I have prior year adjustments in GL?" and article 17502 "DocLink: How do I close prior year adjustments to retained earnings?" for more information.

1. Determine last fiscal year's retained earnings ending balance as follows:
   1. In General Ledger, from the Setup menu, select Accounts.
   2. In the Account box, type the retained earnings account number.
   3. Select the Balances (Accrual) or Balances (Cash) tab depending on your accounting method.
   4. Note the amounts in the Year end 1 year ago, YTD net change, and Current balance boxes.
2. Determine the closing entries made to the retained earnings account as follows:
   1. From the Reports menu, select Entries > Entries by Account.
   2. Select GL Transaction (history), and then click [OK].
   3. In both the Accounting Date From and Accounting Date To boxes, enter last year s fiscal year-end date.
   4. Click [Conditions] and then click [Add].
   5. In the Field section, select Source.
   6. In the Operator section, select Equal to.
   7. In the Value section, select Close fiscal year.
   8. Click [OK].
   9. Click [Add].
   10. In the Field section, select Accrual or Cash.
   11. In the Operator section, select Equal to.
   12. In the Value section, select the accounting method you are reconciling (Accrual or Cash).
   13. Click [OK] twice.
   14. Click [Start] to print the report to a file or printer.
   15. Note the difference between the total debits and total credits for the retained earnings account.
3. Calculate the correct retained earnings balance as follows:

   Year end 1 year ago (from step 1d) + the closing entries made to retained earnings (from Step 2o) + YTD net change (from step 1d) = the correct current balance.

4. Compare the correct current balance (from Step 3) to the amount in the retained earnings Current balance box (from step 1d).
   1. If they do not equal, change the amount in the Current balance box to the correct current balance as follows:
      1. From the Tools menu, select Options.
      2. Select the Audit setup activity check box.
      3. Click [OK].
      4. From the Setup menu, select Accounts.
      5. Click [Start] to print the audit report.
      6. In the Account box, type the retained earnings account number.
      7. Select the Balances (Accrual) or Balances (Cash) tab depending on your accounting method.
      8. Change the Current balance amount to match the correct current balance you calculated (from Step 3).
      9. Change the Future balance amount to be the sum of the correct current balance (from Step 3) and any future activity.
         Note: You can determine future activity by adding the amounts in the six boxes on the left-side of the Activity (Accrual) or Activity (Cash) tab.
      10. From the Tools menu, select Options.
      11. Clear the Audit setup activity check box.
      12. Click [OK].
   2. If they do equal, review the closing entries to verify whether the closing entries correctly offset each Income, Expense, and Cost account's last fiscal year ending balance. Create a simple report that shows the last fiscal year ending balances for each Income, Expense, and Cost account as follows:
      Note: You can also download and use the report below instead of creating one in Report Designer.
      1. In Report Designer, from the File menu, select New Design.
      2. Select GL - Account and then click [OK].
      3. From the list of GL - Account fields, double-click the following fields:
         • Account
         • Account Title
         • Account Type
         • End Balance 1 year ago (if you use Cash accounting, double-click CEnd Balance 1 year ago)
      4. From the Design menu, select Totals.
      5. Select the Report Totals check box and select the check boxes corresponding to any other prefix totals.
      6. Click [OK].
      7. From the Design menu, select [Conditions].
      8. In the Field section, select Account Type.
      9. In the Operator section, select Greater or equal to.
      10. In the Value section, select Income.
      11. Click [OK].
      12. Click [Add].
      13. In the Field section, select Account Type.
      14. In the Operator section, select Less or equal to.
      15. In the Value section, select Other Income.
      16. Click [OK] twice.
      17. From the File menu, select Print.
      18. Click [Start] to print the report to a file or printer.
      19. Compare the End Balance 1 year ago (or the CEnd Balance 1 year ago) to the closing entries on the report you printed in step 2n for each account. The End Balance 1 year ago (or CEnd Balance 1 year ago) should be reversed out by the closing entry. For example, if the End balance 1 year ago was a debit of $100.00, then the correct closing entry would be a credit of $100.00.
      20. If the End balance 1 year ago (or CEnd Balance 1 year ago) is not reversed by the closing entry for any of your accounts, then the fiscal year was closed while that account was set up with an incorrect account type. Refer to the link below about closing the fiscal year with an incorrect account type.