How long do you owe someone money for?
Discussion
I owe a client some money since May 2010.
Each year I've accrued it to carry over the debt so think company accounts wise I'm doing the right thing.
I have tried, and tried to get hold of the client (phone, email etc etc) to ask them for their bank details so I can transfer the funds to them with no success, so in June 2011 I sent a cheque to their address which still hasn't been cashed.
So, how long do I have to keep accruing and making allowances in the cash flow for this debt?
Each year I've accrued it to carry over the debt so think company accounts wise I'm doing the right thing.
I have tried, and tried to get hold of the client (phone, email etc etc) to ask them for their bank details so I can transfer the funds to them with no success, so in June 2011 I sent a cheque to their address which still hasn't been cashed.
So, how long do I have to keep accruing and making allowances in the cash flow for this debt?
If he has sent the cheque to the supplier, then he has paid the bill and he should not be carrying forward the outstanding creditor as a liability in his balance sheet.
All he has at the moment is an outstanding bank payment. If the supplier has failed to cash the cheque, then the OP needs to amend his bank reconciliation to account for the fact that the cheque won't be processed by the bank due to it being out of date.
There is no need for him to worry about an unpaid creditor in his balance sheet. There isn't one.
The only occasion where this would be an issue would be if the amount that remained uncashed was material, in which case the adjustment to the accounts would have a material effect on the "truth and fairness" of the financial statements.
All he has at the moment is an outstanding bank payment. If the supplier has failed to cash the cheque, then the OP needs to amend his bank reconciliation to account for the fact that the cheque won't be processed by the bank due to it being out of date.
There is no need for him to worry about an unpaid creditor in his balance sheet. There isn't one.
The only occasion where this would be an issue would be if the amount that remained uncashed was material, in which case the adjustment to the accounts would have a material effect on the "truth and fairness" of the financial statements.
OK, I accept what you say that yes I have written the cheque and sent it to the Client (not a supplier but a damage/utilities refund once they've left - we're a holiday company) so effectively we've paid the debt.
But as we know that the cheque now won't be honoured because it's out of date surely I've got to add it back in to the accounts as a creditor because if he crops up out of the wood work and says "oi where my money" so I pay him (as I know we owe it) then in the accounts unless I make an allowance for the outstanding debt won't it look like I've paid him twice?
In the bank reconciliation there is a line item for the amount so does that also stay there for ever, or when is reasonable to remove it?
But as we know that the cheque now won't be honoured because it's out of date surely I've got to add it back in to the accounts as a creditor because if he crops up out of the wood work and says "oi where my money" so I pay him (as I know we owe it) then in the accounts unless I make an allowance for the outstanding debt won't it look like I've paid him twice?
In the bank reconciliation there is a line item for the amount so does that also stay there for ever, or when is reasonable to remove it?
Eric Mc said:
Firstly, is it a material amount?
If it is incorrectly stated will the accounts be materially misleading?
No, less than £1,000, it just niggles me and I like to know what I should do and keep all my management accounts and various spread sheets in order.If it is incorrectly stated will the accounts be materially misleading?
Eric Mc said:
What has your accountant advised you to do?
I haven't submitted this years accounts to him yet so at this stage he won't know that it's still not been paid.Gassing Station | Business | Top of Page | What's New | My Stuff