Do you have a bookkeeper or an accountant? What software are you using? Did you specify what basis of accounting you were using when you first opened your books in the software program? You should have selected the method/basis you were recording your transactions under before even recording transactions. This is very important. This may also be the reason you are experiencing such difficulty with your year end closing process. The software formats the transactions, and subsequent financial reports according to the method/ basis that you are using. If you failed to select the proper method when you first opened your books you will run into problems during the closing process. Your financial statements and reports won't add up either as both methods give different results.
Under the cash method, you should only be recording interest when you receive cash or cash exchanges hands. This goes for all transactions they are only recorded when cash exchanges hands. As a result, since transactions are only recorded when cash exchanges hands, you shouldn't have any adjusting entries to record. The only other things that I can suggest are possibly causing you this error aside from not selecting the right method when first opening your books, is that it may be due to either recording the wrong accounts involved in the transactions, debiting or crediting the wrong accounts during initial recording of transactions, any of which can result in an unequal matching of debits and credits as well as incorrect year end closing balances.
Cash was received - in an ITF account. Therefore, it was received, and with that, I am comfortable adjusting the RE YE balance to reflect the annual interest income earned. Thanks!
Using cash-basis accounting, is it correct to adjust the Retained Earnings in January to account for the 2011 interest income earned? Just want to make sure, as I am familiar with accrual accounting and adjusting RE other than at year-end is just wrong.