Start by pulling the last filed Form 990 next to the books for that same year. Compare total revenue, total expenses, total assets, total liabilities, and net assets at year-end. Note every line that doesn’t agree. Sometimes it’s one reclassification between restricted and unrestricted net assets. Sometimes it’s an entire category of transactions recorded differently than the return reports.

Reconcile your beginning balances to the prior return. Whatever the 990 shows for ending net assets, total assets, and total liabilities is what the books should carry as opening balances for the following year. If your accounting software shows different numbers, the books drifted from the filed return somewhere along the way. That drift is what needs to be explained before you can trust anything that came after it.

Document every adjustment. Don’t just plug numbers to force a match. Write down what each difference was, why it happened, and how you corrected it. Common causes for nonprofits include contributions misclassified between donor-restricted and without restrictions, in-kind donations recorded in the books but not on the return, grant revenue recognized in different periods, and depreciation handled inconsistently. Keep a working paper that ties the book balance to the return balance with clear explanations a reviewer or auditor could follow later.

Have a tax professional decide whether the prior 990 needs to be amended. Not every book correction triggers an amendment. If the books were wrong and the return was right, adjust the books to match the filed return. If the return itself was wrong, an amended Form 990 may be appropriate depending on the size of the error and whether it affects required disclosures like program service expenses, executive compensation, or fundraising activity. Because a nonprofit’s 990 is public information, material misstatements deserve a careful judgment call rather than an automatic refile.

Going forward, tighten the year-end close so this doesn’t repeat. After the 990 is filed, the bookkeeper should enter the final adjusting entries used on the return into the accounting software and verify the trial balance ties exactly to the filed amounts. Skipping that step is the most common reason books and returns drift apart over multiple years.

If the gap covers more than one year or the cause isn’t obvious, this is the kind of cleanup work we handle as part of our small business accounting, bookkeeping and tax services in Jacksonville, NC. Getting the historical numbers right protects the organization’s records, its board, and its standing with donors and the IRS.