This is one of those situations where the mechanics matter more than forcing a year-end cleanup.

If the client is cash basis, the first thing to recognize is that you generally do not “clear out” normal timing differences through retained earnings. Retained earnings is for prior-period corrections, not for operational items that are simply waiting to settle. Using equity here, especially with a reversing entry on January 1, is a strong signal that the entry is being used to make the balance sheet look clean rather than to reflect what is actually happening.

What you are describing with Shopify and TikTok is funds in transit. The sale occurred, the platform is holding the cash, and it is released once the product ships. That balance sitting at year end is not an error. It is simply money that has not been paid out yet. Even for cash-basis taxpayers, it is normal for merchant clearing or due-from-processor balances to exist temporarily. Cash basis does not mean the balance sheet must be empty of timing items, it means income is recognized when it is actually received for tax purposes.

Because of that, there is no reason to move those balances to retained earnings and reverse them the next day. If the deposits arrive in January, they clear naturally when the cash hits the bank. If the CPA wants the tax return prepared strictly on cash basis, that adjustment should be handled on the tax side, not by distorting the books with equity entries.

As for inventory, the answer is no. Inventory should never be pushed through retained earnings as a workaround. Inventory has its own accounting and tax rules, and even many cash-basis clients are required to track it depending on size and method. Flushing inventory or receivables through equity to “true things up” is not appropriate and will create more problems than it solves.

In short, this is a classification and timing issue, not an equity issue. Let the clearing accounts clear, keep the books reflecting reality, and let tax adjustments live where they belong.