Company accounts: end of year
Discussion
Our year ended 30/11 and I am just tidying up the accounts ready to send to my accountant, but wondered how to deal with those jobs that bridge the two years? Previously I have just made sure that they didn't by an almighty rush at year end but I am thinking there must be a proper way of doing it. So;
1) Worked carried out in the last few months of the year, costs (supplirs) incurred in that year but client not invoiced until the second year?
2) Work that crosses two years in terms of costs but invoiced in the second year? Difficult to attribute costs to one year or another as I don't know when the work was done, just when it was delivered.
3) Work carried out in year one, but costs not incurred by me until year 2 when the suppliers' invoices arrive and then invoiced to the client in year 2.
4) Work carried out in year one, invoiced year one but my suppliers don't invoice until year two.
Tell your accountant exactly these details and quantify the values of each elelment.
They will then be able to account for them by means of Closing Working Progress adjustments and Accrued Costs.
The important thing about accounts is that, for any given period, income should "match" expenditure. If there is any element of unmatched transactions because of timing differences, late invoices or other cut off issues, then the above adjustments should restore order.
They will then be able to account for them by means of Closing Working Progress adjustments and Accrued Costs.
The important thing about accounts is that, for any given period, income should "match" expenditure. If there is any element of unmatched transactions because of timing differences, late invoices or other cut off issues, then the above adjustments should restore order.
It's not that simple.
Tax points are an indication only as to the period referred to in an invoice.
If it was that simple, businesses would try to manipulate the accounting periods in which certain transactions appear in their accounts merely by choosing convenient tax point dates. To some extent, businesses do try this on, but correctly applied "matching" should minimise the effects of this.
At heart, the Enron fraud was essentially misuse of "matching". Wherever possible, they were trying to show in the current year accounts, income that was not expected to arrive for years to come, thereby artificially increasing their annual profits.
Tax points are an indication only as to the period referred to in an invoice.
If it was that simple, businesses would try to manipulate the accounting periods in which certain transactions appear in their accounts merely by choosing convenient tax point dates. To some extent, businesses do try this on, but correctly applied "matching" should minimise the effects of this.
At heart, the Enron fraud was essentially misuse of "matching". Wherever possible, they were trying to show in the current year accounts, income that was not expected to arrive for years to come, thereby artificially increasing their annual profits.
Eric Mc said:
At heart, the Enron fraud was essentially misuse of "matching". Wherever possible, they were trying to show in the current year accounts, income that was not expected to arrive for years to come, thereby artificially increasing their annual profits.
My firm had that, with the CFO of the division taking claims to value that were never actually going to be paid, or would only be paid years in the future. Eventually ended up in a write off of 10's of millions, and his sacking.As I said to them in my performance review, "I never knew how Enron could get into so much trouble, until I came here".
Large companies (usually PLCs) tend to perpetrate frauds where their income is exaggerated. Thi is usually to enhance or shore up the company's valuation on the Stock Exchange - or to inflate figures on which performance bonuses are based.
Smaller entities tend to perpetrate frauds in which income (and therefore profits) are UNDERSTATED as that tends to lead to lower tax bills.
Smaller entities tend to perpetrate frauds in which income (and therefore profits) are UNDERSTATED as that tends to lead to lower tax bills.
Edited by Eric Mc on Monday 3rd December 12:22
Eric Mc said:
Smaller entities tend to perpetrate frauds in which income (and therefore profits) are UNDERSTATED as that tends to lead to lower tax bills.
Are they not deferring the liability into the next year as opposed to not declaring it?Edited by Eric Mc on Monday 3rd December 12:22
I have great problems telling when work was done. For example I invoice in January for work I paid my suppliers for in December ( for example telpehone interviews where the work wil be spread over 6 months), but which was actually done on my behalf in September (last year) along with some work in December (the second year).
I don't ask them when they did the work as long as they hit the deadline in December. In turn when I come to pass that work on in the new year, some of it I may have paid for in the old year, and some in the new.
Yes, they are deferring the income. This is still incorrect and possibly fraudulent if it:
a) mis-states the accounts so that they are no longer true and fair
b) does not comply with normal accounting standards and conventions - normally referred to these days as Generally Applied Accounting Principles or GAAP.
c) because of the above, results in the entity misdeclaring its profits for an individual tax year.
Shifting income and expenditure around like this so as to avail of tax rule changes (for instance) is fraudulent if the accounting adjustments contravene GAAP.
The Revenue will challenge a transaction or a series of transactions if they think it isn't within GAAP.
a) mis-states the accounts so that they are no longer true and fair
b) does not comply with normal accounting standards and conventions - normally referred to these days as Generally Applied Accounting Principles or GAAP.
c) because of the above, results in the entity misdeclaring its profits for an individual tax year.
Shifting income and expenditure around like this so as to avail of tax rule changes (for instance) is fraudulent if the accounting adjustments contravene GAAP.
The Revenue will challenge a transaction or a series of transactions if they think it isn't within GAAP.
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