Costs and invoices from last year
Discussion
Our company financial year ends today.
Invariably in afew months time after the accountant has allhe figures and papers I wil find odd things which I have forgoteen (parking recipts, tolls, hotel bills, sanwich recipts, trips I forgot to claim the mileage on). I also found, part way through this year, that an invoice ( about £400) we thought had been paid in 2006/7 and which we showed as paid on our 2006/7 accounts, had not in fact been paid and was paid only a few months ago (glitch in their finance system).
How should we show these in the accounts? Do you just stick the recipts through in this year and say nothing until the inspection? What about the invoice we thought we had collected, and have paid the VAT and the CT on?
The new VAT rates will complicate this further no doubt.
There is a basic accounting concept known as "matching" i.e. making sure that the income generated in the accounting year is offset by the expenditure incurred by the business to generate that income in that year.
Therefore, it is only right and proper that all expenses relevant to the year are included in the accounts.
If some costs have somehow slipped through the net and never been processed by the accounting system an effort should still be made to ensure that they are properly recorded in the relevant accounting year.
How they get included in the system before the accounts are finalised will depend on some extent to the way in which they ended up being omitted in the first place.
For example, if you run a Purchase Day Book system and control your trade creditors properly, missing costs might manifest themselves by showing a particular supplier being overpaid i.e. the payment to the supplier has been posted to his creditor's ledger account but the original invoice never was.
On other occasions, the omission of the expense is because the bill was paid using cash or directly by the proprietor and was therefore not picked up by the normal business payments system.
If the former is the case, then an accrual can be provided to ensure that the cost shows up in the right year. An effort should be made to find the missing invoice and that can be processed as and when it is received - even if it doesn't turn up until the new accounting year. The fact that the accountant has provided an accrual will mean that the expense is not counted twice in error.
If the latter (unrecorded cash or proprietor's payments), then the easiest thing is to offset the missing cost against the proprietor's drawings (if a sole trader or partnership) or a director's loan account (if a limited company).
The important thing is to let the accountant know about any such missing business costs and he/she should be able to take the appropriate actions when finalisisng the accounts.
Of course, any such claims for missing costs should be supportable by obtaining the missing invoices/receipts later or showing some evidence that the cost was paid outside the business (e.g. a non-business bank or credit card account) and was business related.
The Revenue will always require that all business costs are properly supportable by adequate documentary evidence. Of sourse, missing expediture invoices could also mean that reclaimable Input VAT is not being recovered.
Therefore, it is only right and proper that all expenses relevant to the year are included in the accounts.
If some costs have somehow slipped through the net and never been processed by the accounting system an effort should still be made to ensure that they are properly recorded in the relevant accounting year.
How they get included in the system before the accounts are finalised will depend on some extent to the way in which they ended up being omitted in the first place.
For example, if you run a Purchase Day Book system and control your trade creditors properly, missing costs might manifest themselves by showing a particular supplier being overpaid i.e. the payment to the supplier has been posted to his creditor's ledger account but the original invoice never was.
On other occasions, the omission of the expense is because the bill was paid using cash or directly by the proprietor and was therefore not picked up by the normal business payments system.
If the former is the case, then an accrual can be provided to ensure that the cost shows up in the right year. An effort should be made to find the missing invoice and that can be processed as and when it is received - even if it doesn't turn up until the new accounting year. The fact that the accountant has provided an accrual will mean that the expense is not counted twice in error.
If the latter (unrecorded cash or proprietor's payments), then the easiest thing is to offset the missing cost against the proprietor's drawings (if a sole trader or partnership) or a director's loan account (if a limited company).
The important thing is to let the accountant know about any such missing business costs and he/she should be able to take the appropriate actions when finalisisng the accounts.
Of course, any such claims for missing costs should be supportable by obtaining the missing invoices/receipts later or showing some evidence that the cost was paid outside the business (e.g. a non-business bank or credit card account) and was business related.
The Revenue will always require that all business costs are properly supportable by adequate documentary evidence. Of sourse, missing expediture invoices could also mean that reclaimable Input VAT is not being recovered.
Edited by Eric Mc on Sunday 30th November 10:06
Eric Mc said:
There is a basic accounting concept known as "matching" i.e. making sure that the income generated in the accounting year is offset by the expenditure incurred by the business to generate that income in that year.
Therefore, it is only right and proper that all expenses relevant to the year are included in the accounts.
If some costs have somehow slipped through the net and never been processed by the accounting system an effort should still be made to ensure that they are properly recorded in the relevant accounting year.
How they get included in the system before the accounts are finalised will depend on some extent to the way in which they ended up being omitted in the first place.
For example, if you run a Purchase Day Book system and control your trade creditors properly, missing costs might manifest themselves by showing a particular supplier being overpaid i.e. the payment to the supplier has been posted to his creditor's ledger account but the original invoice never was.
On other occasions, the omission of the expense is because the bill was paid using cash or directly by the proprietor and was therefore not picked up by the normal business payments system.
If the former is the case, then an accrual can be provided to ensure that the cost shows up in the right year. An effort should be made to find the missing invoice and that can be processed as and when it is received - even if it doesn't turn up until the new accounting year. The fact that the accountant has provided an accrual will mean that the expense is not counted twice in error.
If the latter (unrecorded cash or proprietor's payments), then the easiest thing is to offset the missing cost against the proprietor's drawings (if a sole trader or partnership) or a director's loan account (if a limited company).
The important thing is to let the accountant know about any such missing business costs and he/she should be able to take the appropriate actions when finalisisng the accounts.
Of course, any such claims for missing costs should be supportable by obtaining the missing invoices/receipts later or showing some evidence that the cost was paid outside the business (e.g. a non-business bank or credit card account) and was business related.
The Revenue will always require that all business costs are properly supportable by adequate documentary evidence. Of sourse, missing expediture invoices could also mean that reclaimable Input VAT is not being recovered.
I am loathe to start adjusting my monthly sheets etc for £100 or so, but equally I don't think I should miss out on the payment as they are properly receipted. I know accountants and tax men have their 'rules' for a reason but common sense suggests that as long as I get the money, they show it as an expense of business and they pay tax on the profits, in the boig picture, does it really matter if it is shwon in November 2007/8 or December 2008/9? Therefore, it is only right and proper that all expenses relevant to the year are included in the accounts.
If some costs have somehow slipped through the net and never been processed by the accounting system an effort should still be made to ensure that they are properly recorded in the relevant accounting year.
How they get included in the system before the accounts are finalised will depend on some extent to the way in which they ended up being omitted in the first place.
For example, if you run a Purchase Day Book system and control your trade creditors properly, missing costs might manifest themselves by showing a particular supplier being overpaid i.e. the payment to the supplier has been posted to his creditor's ledger account but the original invoice never was.
On other occasions, the omission of the expense is because the bill was paid using cash or directly by the proprietor and was therefore not picked up by the normal business payments system.
If the former is the case, then an accrual can be provided to ensure that the cost shows up in the right year. An effort should be made to find the missing invoice and that can be processed as and when it is received - even if it doesn't turn up until the new accounting year. The fact that the accountant has provided an accrual will mean that the expense is not counted twice in error.
If the latter (unrecorded cash or proprietor's payments), then the easiest thing is to offset the missing cost against the proprietor's drawings (if a sole trader or partnership) or a director's loan account (if a limited company).
The important thing is to let the accountant know about any such missing business costs and he/she should be able to take the appropriate actions when finalisisng the accounts.
Of course, any such claims for missing costs should be supportable by obtaining the missing invoices/receipts later or showing some evidence that the cost was paid outside the business (e.g. a non-business bank or credit card account) and was business related.
The Revenue will always require that all business costs are properly supportable by adequate documentary evidence. Of sourse, missing expediture invoices could also mean that reclaimable Input VAT is not being recovered.
Edited by Eric Mc on Sunday 30th November 10:06
I think the missed invoice probably does need properly processing as it is a larger sum (£500) and I had specifically told the accountant it had been paid, and handed VAT any any CT due over to HMRC. I think the 2007/8 accounts need to show an adjustmnet somehow otherwise the amount of tax and VAT we have declared and paaid wil be incorrect, but on a larger scale.
Our system for making sure invoices are paid isn't very advanced: when it is paid I usually get a BACs notice oor cheque, I change it on the spreadsheet from Red to Black, insert the paymnet date and the VAT quarter it was acounted in. I think I must have just completed it as 'paid' along with other invoices.
I can see the argumnet that the two are efectively the same: unaccounted expenses and receipts, it just feels a complex way to fix it by showing it as a directiors loan for a night in a hotel , some aprking and a Big Mac.
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