QuickBooks Desktop to Online Migration: Balances Don't Match

Why are my balances off after migrating QuickBooks Desktop to Online?

Balances differ after a Desktop-to-Online migration for one of three reasons: you chose to move less than everything, something moved wrongly or twice, or the Desktop file already had problems the move exposed. Intuit's own check is to run the same report for the same date range in both files and compare (Intuit). A gap is an error only after you rule out the first reason, so settle what you moved before you fix anything.

The case is simple when you moved all data, the gap sits in one account and one dated entry explains it. It is not simple when:

• The Online balances disagree with the balance sheet on the last filed return.
• The Desktop file was condensed, or only part of the history moved.
• Bank or card accounts will not reconcile from the move date forward.
• A return is due, or a year that was already filed would change.

Gather these before you start:

• A backup of the Desktop file, taken now and left untouched.
• The move date and the option chosen: all data, a date range, or lists only.
• The last filed return for each entity, with Schedule L if it has one.
• Bank and card statements from the move date back to the last month that reconciled.

How do I compare the Desktop and Online files?

Run the same reports on the same basis and for the same date in both files, then list every account where they disagree. Intuit's steps name the profit and loss (year to date, same date range in both), the balance sheet and the A/R and A/P (accounts receivable and payable) reports. They name no trial balance (every account with its balance on one date). Adding one, as of the same date, puts every account side by side.

1. Save the Desktop reports as PDFs before you change anything.
2. Run each report in both files on the same basis (cash or accrual) and the same dates.
3. Compare as of the move date, not today. Anything entered online afterward is a real difference.
4. Write down each differing account and the amount.
5. Open the transaction detail for each one and find the entry that is in only one file.

Which differences are expected from what I moved, and which are errors?

A difference is expected when it traces to what you chose to move, to items Intuit says do not migrate, or to work done online since the move. Any other gap needs tracing before you call it an error. Intuit's tool lets you move all data, or lists such as customers, vendors, chart of accounts, employees and items. Its switch page also describes moving transactions within a date range and balances (Intuit). The options and terms offered can differ by Intuit tool and plan and can change, so confirm which one you used and check Intuit's pages for current terms, then match the table to it.

Intuit's page says some items do not migrate and links a list of them; check that list before calling a gap an error. For payroll, Intuit tells Desktop payroll users to wait 2 to 3 business days after the last payroll run, and to finish the move before the next one, so that paycheck data transfers without errors (Intuit). If your move came right after a payroll run, check wages and liabilities for the pay dates around it. Payroll balances that will not clear: payroll liabilities that won't clear. Withheld payroll tax that was never paid over can reach people, not only the business: a responsible person who willfully did not pay it over can owe a penalty equal to the unpaid amount (Publication 15). Who counts as responsible, and the time limits: trust fund recovery penalty.

When a gap is an error, look for a transaction in one file only, a transaction in both (moved, then loaded again by a bank feed or typed in), or a transaction dated on the wrong side of the move date. Income counted twice: duplicate income in QuickBooks. A stuck Undeposited Funds balance: Undeposited Funds balance.

Can I just run the migration again?

Not before you know what it replaces. Intuit says the Desktop file replaces all data after migration, and that replacing data in an Online company cannot be undone (Intuit; Intuit). Every entry and correction made online since the first move would be replaced by the Desktop file as it stands. Intuit ties the replace warning to a company that already has data, so confirm which Online company a rerun would write to. Intuit's pages do not say whether reconciliation history crosses in either direction, so do not count on it surviving or transferring.

If you do rerun, save the Online reports and a list of every entry made online first, because the rerun replaces them and you will enter them again.

How do I tie the opening balances to my last filed return?

At the start of a tax year, the opening balance sheet should equal the balance sheet at the end of the last filed year. For a move during the year, Online should equal Desktop at the move date, and the Desktop balances at the last year-end should tie to that year's return, as the table shows. Where they do not, the difference needs an explanation, not a plug. What the return gives you to tie to depends on the entity.

For a partnership, total assets at the start of the year generally must equal the prior year's close, or a statement explains the difference.

A small partnership or corporation that answers "Yes" to the small-entity question is not required to complete Schedule L (optional on Form 1065). The question is Schedule B question 4 on Form 1065, Schedule B question 11 on Form 1120-S and Schedule K question 13 on Form 1120 in the latest instructions; check the form for the year. There may then be no filed balance sheet, so you tie to the prior year-end books and the statements.

A gap with Schedule L can start before the move. Year-end entries a preparer posted outside your Desktop file would be on the return but were never in the file, so they never moved. Equity that no longer matches the return: retained earnings don't match last year's return. Setting opening balances from the return: opening balances after changing accountants.

My bank and card accounts will not reconcile: where do I restart?

Reconcile forward from the latest statement where the book balance, adjusted for outstanding items, equals the statement balance. Publication 583 says to reconcile each month, to start from the checkbook balance at the end of the previous month, and that the adjusted bank balance should equal the adjusted book balance. It also says to correct errors in the books, not only in the statement.

1. For each bank and card account, take the statement closest to the move date.
2. Compare the book balance at that date, adjusted for outstanding items (recorded in the books but not yet on the statement), with the statement balance.
3. If they agree, the problem is after the move: reconcile forward, starting with the first statement after the move date.
4. If they do not agree, step back one statement at a time to the last month that does agree. Reconcile forward from that month.
5. Reconcile forward month by month. When a month will not balance, find the entry. Do not let a reconciliation adjustment absorb it.

Do the same for loan accounts, using the lender's statements. A beginning balance that no longer matches the statement: reconciliation beginning balance wrong.

What if the conversion condensed or dropped history?

History can be missing for three reasons: you chose a date range or lists only, the Desktop file was condensed to get under the size limit, or some years did not come across for a reason your choices do not explain. The first is a choice. The second can create a problem in an audit. The third is an error to trace.

Intuit's page says the file must be under a size limit and that a larger file must be condensed before the move. The IRS explains that condensing removes the detail of old closed transactions and replaces them with summary journal entries, and that the software keeps an archive copy of the detail (IRS FAQ). The same FAQ says:

• Condensed data is not acceptable for the tax years under audit.
• Condensing is allowed for earlier dates, if it does not touch transactions created or changed in the years under audit, or prior-year transactions that affect them.
• If an audit widens, the IRS may ask for a backup made before the condensing, or for the archive copy.

So find the archive or pre-condensing backup and keep it with the original Desktop backup. Detail for items that carry into the current return, such as fixed assets, loans and carryovers, may be needed later, so confirm it survived the condensing. Cutover date and how much history to move: switching accounting software mid-year.

Where do the leftover differences go?

Trace each difference to a transaction first. Fix a traced error at the transaction; a supported correction that comes from the return, not the books, may need a dated adjusting entry. A difference you cannot trace needs more tracing and the preparer's review, not a balancing entry and not a place in Opening Balance Equity or an uncategorized account. No IRS rule says who approves it; as a control, the person who signs the return should approve any entry that moves income or equity.

A gap left in Opening Balance Equity is still unexplained; it needs moving to the right equity accounts (Opening Balance Equity). A catch-all income or expense account hides the gap in the profit and loss, which flows into the income on the return. If the difference sits in a year that is already filed, do not edit that year: see closing date after taxes are filed.

How do I keep the original Desktop file as proof?

Take your own backup of the Desktop file as of the move, before anything is corrected, and keep two copies in separate places. Intuit says the Desktop data stays as you left it, with view-only access for 12 months after you cancel the Desktop subscription. That is Intuit's term, not a record you control, and it is shorter than the time you keep supporting records: generally 3 years after you file or the due date, whichever is later, and longer in some cases (how long to keep business records).

The IRS says examiners request the accounting software backup file early in the examination, in the majority of cases where books are kept in software, and ask for the administrator's username and password because most data files cannot be read without it. In a narrow audit the examiner may not ask. It says the backup is an exact copy of the original books of entry and that Excel exports cannot be tested the same way (IRS FAQ).

Keep the items from the list at the top of this page, plus any pre-condensing archive, PDFs of the Desktop and Online reports for the move date, and a note of who ran the move. What to export before cancelling: records to keep when cancelling QuickBooks.

When is this a job for a professional before the return?

When fixing the books means deciding what the return should show. The IRS recordkeeping page says records must support the items reported on a return, so the books and the return have to tell the same story. Get a professional involved if any of these is true:

• The Online balance sheet, the Desktop file and the filed return all differ.
• A month will not reconcile after you restart from the last good statement.
• A year already filed would change, or years were condensed.
• Income, payroll or sales tax balances differ after the move and a return or filing is due.
• A notice or examination is open.

Bring the Desktop backup, the same-date reports from both files, the filed returns and the statements. What the books should show at the opening date, and which fixes belong in the books and which in the return, is for the person who signs the return, not the software.

Example

These examples are illustrative and use US dollars.

A restaurant LLC that moved on December 31

The Desktop A/R is US$52,000 and the Online A/R is US$48,000. A/R aging by customer, run as of December 31 in both files, shows the whole US$4,000 sits with one customer: an invoice that is in Desktop and not in Online. The owner checks the customer's statement to confirm the invoice is real. The fix is one entry in the Online file, with the invoice's real date, on or before December 31 of a year whose return is not yet filed. A rerun would also replace the weeks of work done online since the move.

A contractor S corporation whose first reconciliation is US$15,000 off

The first Online bank reconciliation opens at US$135,000 against a statement of US$120,000. The transaction detail shows US$15,000 of deposits entered twice: once by the move, and once when the bank feed loaded deposits from earlier this year again. The corporation removes the duplicates, checks that income is not overstated, and re-reconciles from the first statement of the year, confirming that each month opens at the prior statement's ending balance.

A two-member LLC taxed as a partnership that moved only lists and balances on January 1

The Online file opens US$9,000 away from last year's filed Schedule L. The Desktop balance sheet matches the Online opening balances, so the move is not the cause. The return carried a US$9,000 year-end adjustment that was never entered in the Desktop file. The books open at the Desktop figure, and the difference is explained in a statement, as the Form 1065 instructions provide. The preparer decides whether the books should also record the adjustment.

Different for you?

• A return is due and the differences are not explained by what you moved: balances changed after the move, the books disagree with last year's Schedule L, or years were condensed. Which fixes belong in the books and which in the return is a judgment for the preparer. Settle it before the return starts, with bookkeeping help.
• A year that was already filed would change: see closing date after taxes are filed.
• The books are months behind as well: see catching up on overdue books.
• Partner capital accounts will not tie to the K-1s: see partner capital accounts.
• You have not decided whether to stay on Desktop: see QuickBooks Desktop discontinued.
• You moved to software other than QuickBooks Online: the same-date comparison and the return tie-out above still apply; what the move tool carries over is that vendor's rule. To choose software, see QuickBooks alternatives your accountant supports.
• A notice or examination is open: the IRS says condensed data is not acceptable for the years under audit, so ask whoever represents you before the file is condensed or purged. See an IRS audit of a small business.