USA SEP Contributions S Corp Shareholder

[kgbigham]

Hi,
I have a client that made a SEP contribution through their S Corp 100% owned by one person. I am questioning the way that they prepared there journal entry for the contribution. They created a current asset account and transferred the contribution. Debit to current asset (SEP account) and credit to cash. I don't think this is correct as I thought that the entry should debit employee benefits (SEP) and credit cash. I understand that there may be different rules since they are the only employee and the shareholder of the company. Please share any information that you have about this. Or if there is somewhere I can find the information that I need.
KGB

 

[StanleyR1]

You're correct that the money should be debited to employee benefits. Was it actually deposited into an SEP IRA Account, or just set aside in the company's books to be paid out later?

 

[stevuke79]

You are correct, the debit should be to an expense.

I'm speculating what the rationale would be to debit a current asset. Perhaps they were thinking that since for tax-basis the sep contribution is added back to calculate taxable income, they were leaving it off the income statement. (It's deducted as an adjustment to income.)

Or perhaps they thought the sep account is an asset of the business.

But whatever their rationale, it's wrong.