# Tri-County Tire LLC — First-Pass Diagnostic

**From:** Ledger
**To:** Jimmie
**Date:** 2026-05-24
**Slug:** `tri-county` | Realm: `9341455601828551` | Tier: non-chairman, no ceiling
**Reports pulled:** Balance Sheet (Apr 30 2026), P&L (Apr 2026 + monthly Jan–Apr), AR Aging (today), AP Aging (today), Trial Balance (MTD May)

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## TL;DR

**The books are not in a state where routine close work or FP&A is meaningful.** This is a cleanup engagement, not a maintenance one. Three of the four legs of the balance sheet are structurally broken (equity, AR, inventory), the COA has 216 active accounts (typical small business: 30-80) including a complete shadow A/R system, and the vendor master is dirty. Trial balance does balance ($7.24M ↔ $7.24M), so the math is consistent — but consistency on a broken structure just means errors propagate cleanly.

**Recommended next step:** Cleanup scope conversation with the client before any monthly close work begins. Best-case revenue scale is real (~$7-8M annualized) and gross margin looks healthy (~30%), so the business is likely fine — the *books* aren't.

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## What the books say at a glance (April 30 2026)

| Item | Amount | Notes |
|------|-------:|-------|
| Total Assets | $3,683,160 | |
| Cash (Royal Bank checking) | $127,528 | Only real bank account |
| Inventory | $1,918,960 | Includes negative subaccount balances — see Issue #3 |
| QBO AR module | $825,392 | $844K of that is the company's OWN name as a customer — see Issue #1 |
| Shadow "AR (Tireshop)" GL | $482,397 | Custom GL, runs in parallel to QBO AR — see Issue #1 |
| Undeposited Funds (Tireshop) | $402,751 | Should clear weekly. Hasn't. |
| Total Liabilities | $675,972 | |
| QBO AP module (BS) | $608,338 | But AP aging shows $825,348 — $217K discrepancy. See Issue #5 |
| Sales tax to pay | $18,771 | Need to check filing status |
| **Opening Balance Equity** | **$3,232,052** | **Should be ~$0. See Issue #2 — this is the worst one.** |
| Retained Earnings | -$409,546 | Negative — accumulated deficit before this year |
| YTD Net Income (BS Apr 30) | $184,682 | |

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## Critical Issues (ranked by severity)

### Issue #1 — There are TWO parallel A/R systems

The shop is running A/R in two places simultaneously:

| Where | Balance | Account ID |
|-------|--------:|------------|
| QBO native A/R module | $825,392 | dominated by a customer named **"Tri-County Tire LLC"** ($844K, all 91+ days) |
| "Accounts Receivable (Tireshop)" — custom GL in Other Current Assets | $482,397 | id 1150040000 |
| "Due from Owner Riley" — also in AR header on BS | $830,317 | id 1150040082 (owner loan misclassified into AR) |

The "Tri-County Tire LLC" customer is the company itself listed as a customer with $844K open balance — almost certainly a placeholder/dump customer where misposted transactions land, or owner draws routed through fake invoices. Real customer receivables don't show up cleanly anywhere.

**Tax / consequence flag:** The $830K "Due from Owner Riley" sitting in AR is an owner loan, not a trade receivable. This has direct implications for (a) imputed interest income recognition (there's already a negative "Interest from Owner Riley" account swinging the other way, suggesting somebody tried), (b) potential deemed-distribution / wage reclassification risk depending on entity structure and how it's been growing, and (c) cleanup approach for AFR interest calculation. **Get this in front of Rex if it's not been touched in tax planning yet.**

### Issue #2 — Opening Balance Equity is $3.23M

OBE is a temporary clearing account that should be zeroed out and rolled to Retained Earnings (or other equity accounts) once a QBO file is fully set up. **$3,232,052 sitting in OBE means the file was migrated/converted from another system and never finished.** Combined with -$409,546 in Retained Earnings, the equity section is fictional — the books have never been properly opened.

This blocks meaningful balance sheet reporting until it's resolved. Anything pulled today (net worth, debt-to-equity, return on equity) is garbage.

### Issue #3 — Inventory has negative subaccount balances and double-posting risk

| Sub-account | Apr 30 Balance |
|-------------|---------------:|
| Inventory Asset (parent) | $1,731,567 |
| ↳ New Take Off Inventory | **-$6,170** |
| ↳ Part Inventory | $25,818 |
| ↳ Retread Inventory | $5,183 |
| ↳ Tire inventory | $137,970 |
| ↳ Tracks Inventory | $1,950 |
| ↳ Tube Inventory | $6,408 |
| ↳ Used Inventory | **-$8,650** |
| ↳ Wheel Inventory | $24,884 |

Two issues here:

1. **Negative inventory** in New Take Off and Used — sold/written off more than was on the books. Either receipts weren't posted, or COGS hit inventory directly instead of through items.
2. **Parent account has $1.73M of direct postings of its own**, separate from the subaccount totals (~$187K combined). In QBO, parent accounts shouldn't have direct postings when children exist — it creates double-counting in reports and makes reconciliation impossible. The "Inventory Asset" parent is being used as its own posting account.

Also seeing in TB: a YTD "Inventory Adj/Corr" credit of $99,452 to COGS — almost $100K of manual inventory journals in 4 months. That's not normal close activity; that's symptomatic of inventory subledger and GL not agreeing.

### Issue #4 — Custom GL accounts that duplicate native QBO functionality

| Custom Account | Native QBO Equivalent | Why It's a Problem |
|----------------|----------------------|---------------------|
| "Accounts Receivable (Tireshop)" (id 1150040000) | QBO AR module | Bypasses customer-level aging, statements, payment matching |
| "Undeposited Funds (Tireshop)" with subaccounts (ACH/Cash/Check/CC) | Native Undeposited Funds | Loses native bank rec workflow; clearing now $402K |
| "Vendor Credits Clearing" (id 1150040061) | QBO Vendor Credit feature | $3K balance never cleared |
| "Paid In/Out Clearing" (id 1150040027) | — | $3,500 hitting opex as expense |
| "NSF Clearing" (id 1150040087) | — | $213 hitting opex |
| "Customer AR Adj/Corr" (id 1150040026) | Write-offs through credit memo | $2,457 hitting opex as expense |

The previous bookkeeper built a parallel accounting workflow inside the GL instead of using QBO's native features. Every one of these accounts represents work that would normally happen at the transaction level but is now happening at the journal level.

### Issue #5 — AP module vs aging report discrepancy

| Source | A/P Balance |
|--------|------------:|
| Balance Sheet (Apr 30) | $608,338 |
| AP Aging Report (today, May 24) | $825,348 |
| Trial Balance (MTD May) | $825,348 |

The $217K delta is partly timing (3+ weeks of new bills) and partly because the BS is at April 30 vs aging at today. But also seeing on AP aging:

- **KM TIRE 1 = $269,408** ($192K in 1-30 alone)
- **COLONY TIRE & SERVICE = $142,645** ($140K in 1-30)
- **KM TIRE 2 = $95,967** (likely same vendor as KM TIRE 1 — duplicate master record)
- **COUNTRYWIDE TIRE / COUNTRYWIDE TIRE - 1 / COUNTRYWIDE TIRE - 2** — same vendor split into 3 records, totaling $10,264

Vendor master needs deduplication before aging is trustworthy. Two largest vendors (KM TIRE combined: ~$365K) appear to be the same vendor.

Also seeing negative balances on multiple vendors (NTS TIRE -$5,093, Advance Auto -$74, others) — vendor credits sitting unapplied to future bills.

### Issue #6 — COA is bloated and uses the parent-as-poster anti-pattern

216 active accounts is roughly 3-5x what this business should have. Beyond the duplicate-native-feature issue above:

- Parent accounts like "Inventory Asset", "Sales", "Cost of goods sold" are being posted to directly *and* have children with postings — double counting risk
- "Sales:Uncategorized Income" has a $16,638 YTD credit — money posted to uncategorized that should be reclassed
- "Uncategorized Expense" has a $41 YTD debit — minor but flags routing logic gaps
- Two separate Rent parents ("Rent:Building & land rent" $26,400 and "Rent:Facility Rent" $78,000) — these should be consolidated or properly classed

Recommendation: full COA rationalization is part of any cleanup engagement scope.

### Issue #7 — Fixed Assets is negative ($77,447)

Only one line in Fixed Assets: "Large Equipment Purchases" at -$77,447. Fixed assets can't be negative. Either depreciation is being posted to the gross asset account (instead of accumulated depreciation), or asset disposals were booked incorrectly, or this account is a clearing account masquerading as a fixed asset. Also: **no accumulated depreciation accounts at all** — suggesting no formal depreciation schedule has been maintained.

**Tax flag:** A tire shop with $77K of large equipment purchases should have a depreciation schedule (likely $179 / bonus depreciation eligible). If returns have been filed without one, there's a reasonable chance of incorrect tax depreciation. Worth flagging to Rex.

---

## P&L sanity check

April 2026 alone:
- Revenue $748,747
- COGS $519,224 (Tire COGS dominates at $411K)
- Gross Profit $229,523 (**30.6% gross margin** — healthy for tire/auto)
- Total Expenses $128,021
- Net Operating Income $101,501
- Net Income $98,936 (**13.2% net margin** — strong, *if the books are right*)

YTD Jan-Apr 2026 revenue from TB (Sales accounts only): roughly $2.7M+ in 4 months → $7-8M annualized. This is a substantial operation, not a corner shop. The COA depth is partially justified by genuine business complexity (multiple product lines: tires, retreads, wheels, tubes, tracks, parts, labor, equipment) — but most of the structural problems above are still real.

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## What I am NOT going to do without your call

1. Run a monthly close. **Pointless until OBE and AR are resolved.**
2. Build BvA. **No baseline to budget against.**
3. Issue any client-facing financial summary. **The numbers aren't trustworthy enough to put your name on.**
4. Touch the COA. **Need scope agreement first.**

## What I AM going to do unless told otherwise

1. Pull a few more diagnostics into the Tri-County Tire folder this week:
   - Bank rec status on Royal Bank TCT CHECKING (last reconciled date, unreconciled difference)
   - Full vendor master to confirm duplicate scope (KM TIRE 1/2, COUNTRYWIDE x3, others)
   - Customer master pull to understand the "Tri-County Tire LLC" customer and "Riley Nolt" relationship
   - Recent JE list to see who's posting and what patterns look like

2. Hold on any write activity until you've decided on cleanup scope and we've agreed on the approach.

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## Decisions needed from you

These are not for me to answer — they're for you (and likely a conversation with the client):

1. **Cleanup scope:** Fix in place, OR start a fresh QBO file with proper opening balances (a common call when OBE is this corrupt and a shadow AR exists)?
2. **Period:** Cleanup current year only, or also restate prior periods? Affects tax returns already filed.
3. **Owner loan ("Due from Owner Riley" $830K):** Is this acknowledged by the client/owner? Has it been touched in tax planning? Loop Rex in?
4. **Tier ceiling:** Given the volume of cleanup writes coming, do you want to set a tier ceiling to keep the queue size manageable, or leave it open?
5. **Engagement letter:** Does the existing engagement cover cleanup of this scope, or do you need to scope-expand with the client first?

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## Reference

- COA full pull (216 accounts) saved to: `C:/Users/Minas_Tirith/.claude/projects/C--PKA/25260f0d-1e9e-48c6-96e4-dc51aba8e840/tool-results/mcp-j2-qbo-list_accounts-1779626887487.txt`
- Monthly P&L Jan-Apr saved to: `C:/Users/Minas_Tirith/.claude/projects/C--PKA/25260f0d-1e9e-48c6-96e4-dc51aba8e840/tool-results/toolu_015FSsK64vLjHBNpniLfu2oL.json`
- All raw reports retrievable via j2-qbo MCP as needed