Comprehensive Guide to CaseWare Journal Entries and Depreciation Tie-Outs

Types of Journal Entries and Reclassification Procedures

  • Reclassifying Journal Entries (RJEs):

    • Definition: These entries move amounts from one income statement account to a more specific account to ensure clarity and accuracy.
    • Example (Miscellaneous Expense): If a client has a "Miscellaneous Expense" totaling $1,000,000\$1,000,000, this is insufficient for financial reporting. The amount should be removed from "Miscellaneous Expense" and reclassified into appropriate specific accounts such as computers, postage, or bank charges.
    • Audit/Assurance Context: In the context of an audit (also referred to as attest or assurance), reclassifying entries are frequently used for debt categorization.
    • Current Debt Reclassification: For financial statement purposes, any debt due within the next year must be placed in a separate "bucket." For example, if a client owes $50,000\$50,000 to a bank, the portion due within the next year must be moved from the long-term debt account into a "Current Portion of Notes Payable" account.

  • Adjusting Journal Entries (AJEs):

    • The software refers to AJEs as "Normal" entries.
    • These are used to correct records or account for timing differences.

  • Tax Journal Entries (TJEs):

    • These entries are strictly for tax purposes.

  • Audit-Specific Entries:

    • In full-scale audits, specialized entries like PHAEs exist, though these are considered more complex and strictly within the audit domain.

CaseWare Navigation and Trial Balance Overview

  • Trial Balance Structure (1.901.90 Trial Balance):

    • Prelim Column: Represents the "PVC" (Provided by Client) numbers.
    • Adjustments Column: Displays the AJEs.
    • Reclass Column: Displays the RJEs.
    • Reported Balance: The final figure after all adjustments and reclassifications are applied.

  • Historical Comparison Strategy:

    • Clients are "creatures of habit." If they made a journal entry error in the previous year, they are likely to repeat it this year.
    • With new clients, there is no historical data to review, requiring more critical thinking and manual verification.

  • Software Tip (Multiple Instances):

    • Users can open two instances of CaseWare Working Papers simultaneously by right-clicking the CaseWare logo on the taskbar. This allows for a side-by-side comparison of last year’s entries and the current year’s entries on different screens.

Depreciation Tie-Out and Document Management

  • Prioritizing Adjustments:

    • Retained Earnings: A "heavy hitter" account that needs to be checked early to see if it rolls correctly from year to year. Given the complexity, this is often scheduled for a morning activity rather than late in the day.
    • Depreciation: Another "heavy hitter." This involves timing out depreciation and accumulated depreciation.

  • File Management Procedures:

    • Downloading Reports: For training, the "2025 Book Depreciation Reports" PDF for the "ADC Company" must be downloaded.
    • Document Manager Organization:
      1. Navigate to the "Compilation Procedures" section (for a compilation engagement).
      2. Drag and drop the report into the section.
      3. Right-click and select Properties to rename the file.
      4. Recommended naming convention: 300 c.01 Book Depreciation Reports 12/31/25.
      5. Note: In older versions, review procedures were labeled "300 r" and compilation procedures were "300 c."

  • Software Variations:

    • Offices may use different fixed asset software (e.g., Fixed Assets CS), but the core concepts of tying out and reviewing reports remain the same across all platforms.

Excel Support for Journal Entries (JE Support)

  • Limitation of CaseWare: The CaseWare trial balance (1.901.90) does not allow for side-notes or manual tie-off notations.

  • Workaround (Creating an Excel Support File):

    1. Right-click the 1.901.90 Trial Balance.
    2. Select Save as Excel File.
    3. Name the file JESupport.
    4. This file acts as a "working copy" where tie-outs and formula-based comparisons can be performed.

  • Step-by-Step Tie-Out Process:

    • Cost Beginning: Compare the "Cost Beginning" on the depreciation report to the prior year (12/31/24) reported balance.
      • Sum the assets: Furniture and Fixtures ($60,470\$60,470) + Equipment ($220,503\$220,503) + Goodwill ($397,867\$397,867) + Covenant Not to Compete ($20,000\$20,000).
      • Total: $698,840\$698,840.
      • The beginning balance for 2025 (1/1/251/1/25) must match the ending balance for 2024 (12/31/2412/31/24).
    • Cost Ending: Ensure the "Cost Ending" on the report matches the reported balance in the current trial balance for the same four asset accounts.
    • Depreciation Prior: Compare the "Depreciation Prior" on the report to the accumulated depreciation balance as of 12/31/24.
      • Example calculation: $281,402\$281,402 + $178,770\$178,770 = $460,172\$460,172.
    • Documentation: Once a value is confirmed as tied out, use the "Fill & Sign" or checkmark tool in the PDF viewer to document the verification.

Building and Recording the Adjusting Journal Entry

  • Identifying Differences:

    • Compare what the accumulated depreciation should be (per the Fixed Asset Report) against what is currently in the client's trial balance reported column.
    • Formula for Adjustment: +(Value per Report)−(Value per Client Trial Balance)+ (\text{Value per Report}) - (\text{Value per Client Trial Balance}).

  • Account Specifics (Trial Balance vs. Report):

    • Furniture and Fixtures Accumulated Depreciation (Account 1410): Should be $6,470\$6,470.
    • Equipment Accumulated Depreciation (Account 1520): Should be $23,589.40\$23,589.40 (rounded to $23,589\$23,589 or $23,894\$23,894 depending on specific report total).
    • Accumulated Amortization (Account 1750): Should be $231,694\$231,694.
    • Depreciation/Amortization Expense: If the differences in accumulated depreciation do not sum to zero, the offset is recorded in the expense accounts.

  • Entry Details in CaseWare:

    1. Navigate to the Adjusting Entries tab.
    2. Click New.
    3. Type: Normal (Adjusting).
    4. Description: "To record CY (Current Year) depreciation."
    5. Recurring Settings: Select Recurring and click Advanced. Check Exclude Amounts so the entry rolls forward to the next year with zeroed-out values.
    6. Reference: Reference the source document (e.g., "Book Depreciation Reports").
    7. Account Entries:
      • Account 1410: −14-14 (Credit)
      • Account 1520: −14,948-14,948 (Credit)
      • Account 1750: −52,924-52,924 (Credit)
      • Account 6650 (Amortization Expense): $52,924\$52,924 (Debit)
      • Account 6600 (Depreciation Expense): $14,962\$14,962 (Debit)

  • Final Verification:

    • Ensure the entry balances to zero at the bottom of the screen. Do not post the entry if it is out of balance by any amount (e.g., $1\$1 discrepancy).
    • Reopen the Trial Balance to confirm the AJE appears in the adjustments column.

Questions & Discussion

  • Equipment used during training: A speaker requested that everyone have a computer mouse before proceeding with journal entry tasks.
  • Software Interface Issues: One student reported they could not find the "Adjusting Entries" tab. The instructor advised going to View > Show > Navigation Bar to restore missing tabs.
  • Excel Formula Troubleshooting: A student had difficulty with the sum of differences in Excel. The instructor clarified the calculation for depreciation expense by subtracting known amortization from the total depreciation additions on the PDF ($67,085.85\$67,085.85 total additions - $52,924\$52,924 amortization = depreciation expense).
  • Rounding: The instructor noted that a $1\$1 difference in calculations is usually due to rounding and is acceptable for the purpose of the exercise, provided the final JE in the software balances to zero.