First, size and classify the error
Work out what happened and how big it is. A misclassified expense, where the right amount went to the wrong category, may change nothing on the return. A missed income item or a doubled expense changes profit. A transaction booked in the wrong year affects two periods. Write a one-paragraph description and list the accounts and amounts involved.
Ask your preparer whether the error affects the filed return. If it does, the amendment discussion comes before the books are touched.
Prefer a current-period adjusting entry when allowed
Many corrections can be recorded as an adjusting entry dated in the current year, with a memo explaining that it corrects a prior-year item. This leaves the filed year untouched. Whether that is appropriate depends on the size, the tax effect and your preparer's advice, so confirm before using it.
When the correction does need to reach the old period, work with your preparer on the dates and whether the closed period lock should be lifted.
Handling the opening balances
Retained earnings and equity opening balances should tie to the prior filed return. If you change a closed year, the opening balance of the next year changes too, and everything after it flows through. Compare the balance sheet to the filed return after any change.
Bank, loan and other balance sheet accounts should always agree with outside statements. If an error is in one of these, reconcile it first, because other fixes depend on it.
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Document each fix
For every correction, write what was wrong, how it was found, the entry made, who approved it and the date. Store the note with the reconciliation or the year-end file. Auditors and buyers read these notes and trust books more when they see disciplined corrections.
Avoid deleting transactions in closed periods. Deleting erases evidence. Use reversing entries or voids that leave a record.
Prevent a repeat
Every error has a cause. It might be a duplicated bank feed, a rule that categorizes wrongly or a missing monthly reconciliation. Fix the cause. Add a step to your monthly close to check the area where the mistake occurred.
Once things are corrected, lock the period again so the same issue cannot sneak back.
Example: a duplicated bank feed
Imagine a bank feed imported every card charge twice in October of last year, and the duplicate expenses were never noticed. The fix starts by confirming against the card statement, then asking the preparer whether the filed return used the overstated expense. If it did, the correction may involve an amended return, and the books are adjusted in step with that advice.
Notice that the books were not edited until the facts and advice were in place. That order protects you from creating a second error while fixing the first.
Check your work
After any correction, rerun the prior-year balance sheet and the current opening balances. Opening equity should equal last year's ending equity, unless you and your preparer agreed on a documented adjustment. Keep a memo describing the error, the correction and who approved it.
Common questions
Should I tell my preparer about every correction?
Tell them about any that could change the filed return, and keep a note of the smaller ones. They will say what they need.
Is it a problem if my books differ from the filed return?
Differences can be legitimate, such as tax adjustments, but they should be explained. Unexplained differences cause questions.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.