A relative of mine operates a successful service business.
He just changed CPA's and thought that his new CPA's estimated for 2020 tax liability was way too high so he asked me to run the numbers. I did, it came in a lot lower so we challenged the CPA's estimate.
What we found was that In QB he is including income for jobs in process but not yet invoiced. Payment is received the following year and he journals out the prior year's number.
So a 2019 QB cash P&L was $400K higher than actual revenue and the 2020 QB cash P&L is $400K lower than actual revenue.
He also uses this technique for some expenses.
To me, it makes preparing a tax return using the P&L almost impossible without knowing exactly what needs to be adjusted.
Is this something that is normally done? What documentation can you depend on when preparing a tax return?