Accrual Confusion -need help

pinoyLiz

Hello guys,

Head is spinning on how to do this adjustment.

On end of MAY 09 my collegue accrued £60x (No invoice receive yet), entry was
DR : Expense £60x
CR : Accrued Expense £60x

1st of June (reversal )
CR : Accrued expense
DR : Expenses

When the invoice arrived on 2nd of JULY the amount is different due to foreign exchange rate conversion. The actual cost now is £65x

This confuses me more. The invoice is dated MAY 09, and since May month-end was closed already, she inputed the invoice on SAGE as June 09 and she said she accrued it as June and coded it to ACCRUAL expenses. The entry was

DATE 30 June 09
DR : Accrued expenses £65x
CR : Purchase Ledger Control Account £65x
Paid the invoice 2nd of July by BACS

Please correct me if I am wrong,
Only £60x that was recognised on MAY (understated by £5x)

1. what should I do with this shortage?

2. Should I make an adjustment entry dated 30 June for

DR : Expense £65x
CR: Accrual expenses £65x

should my narrative for my Nominal Journal be Accrual adj rather than reversal?

your help is greatly appreciated. Thank you very much


Kind regards
L:confused1:

Gianni

If you have accrued for an amount and then reversed it the month after, the invoice should be posted to the correct expense account and not the accrual expenses account. If you do it the way she has you're just wasting time preparing a journal.

But as she has already done it do what you've stated in point 2.

AK002

Firstly, reversing the accrual at 1st of June should have been Dr accrual Cr expense.

The difference doesn't really matter, accruals are a rough estimate of an expense.

All you should do is as said reverse out the accrual at June, then post the correct invoice, Dr expense code £65 Cr Purchase Ledger.

pinoyLiz

Gianni wrote: »

If you have accrued for an amount and then reversed it the month after, the invoice should be posted to the correct expense account and not the accrual expenses account. If you do it the way she has you're just wasting time preparing a journal.

But as she has already done it do what you've stated in point 2.

Thanks Gianni,

I didn't really know that she accrued it on May, she just told me to accrue it in June so i thought coding it to accrual is right till I've done the nominal analysis and noticed it.

and the invoice is actually dated May and posted as June.

pinoyLiz

AK002 wrote: »

Firstly, reversing the accrual at 1st of June should have been Dr accrual Cr expense.

The difference doesn't really matter, accruals are a rough estimate of an expense.

All you should do is as said reverse out the accrual at June, then post the correct invoice, Dr expense code £65 Cr Purchase Ledger.

Hi AK002m

Original entry was DR : Expense CR: Accrual to recognise the expense incurred although no invoice yet. Revesed on the next period.

I think , I just need to do the adjusment for end of June.

Thanks,
L

PGM

Seems odd to do the accrual in June, odd as in wrong. And also wrong to post to the control account, I would never put a journal there.

blobbyh

What do you mean PGM? To my knowledge, any purchase invoice loaded into a computerised accounts system will credit to creditors by default, just as a sales invoice would debit to debtors. We don't use Sage, we use Iris Exchequer but they should fundamentally be the same. EDIT; no journal is being posted to creditors, it's just the way the OP has written their post.

The main issue is the debiting of the invoice to an incorrect code, namely B/S accrued expenses when it should have been P&L expenses to offset the 1st June reversal. Point 2 will correct this mispost.

How do you account for the VAT sitting in the correct period in Sage though since it belongs in May and you have it in June? Does Sage have different fields for posting dates & reporting periods?

pinoyLiz

blobbyh wrote: »

What do you mean PGM? To my knowledge, any purchase invoice loaded into a computerised accounts system will credit to creditors by default, just as a sales invoice would debit to debtors. We don't use Sage, we use Iris Exchequer but they should fundamentally be the same. EDIT; no journal is being posted to creditors, it's just the way the OP has written their post.

The main issue is the debiting of the invoice to an incorrect code, namely B/S accrued expenses when it should have been P&L expenses to offset the 1st June reversal. Point 2 will correct this mispost.

How do you account for the VAT sitting in the correct period in Sage though since it belongs in May and you have it in June? Does Sage have different fields for posting dates & reporting periods?

Hi Blobbyh,

Thank you for your comment, I know now that I coded it to the wrong code when posted to P control account, but when I was doing the posting, I thought that after posting I can reverse it by creating a journal (Invoice Paid on JULY) then that's when I've noticed that she've already posted and reversed an accrual for this transaction on MAY, what really annoys me is that she told me to accrue it in JUNE and yes JUNE. With SaGE I can not post the invoice with a MAY date as this will affect the period closing balance of MAY (period closed already b4 posting) although the invoice date is MAY (Luckily code is EU zero VAT - so I am not worried and I think SAGE can reverse and enter adjustment on the return when correcting VAT on purchases anyway).

I understand now that P&L is understated on May ( EXPENSES ) and BS (ACCRUAL) is overstated on June and my point 2 is the correct way to clear the Liability and recognise the actual cost of the expenses for the Financial yr.... Phew!

Any thoughts everyone?? Just in case you have other accrual scenario I need to know :001_smile:

Thanks
L:thumbup:

blobbyh

Sorry lost me a bit there Liz but Are you saying you did a journal to creditors control account (as PGM said) - which you didn't need to as the invoice correctly coded to there when it was entered into Sage? If you're happy it's now sorted then fair enough, your accounts should show £60k in May and the £5k extra in June.

The woman who caused this may also know what she's doing (I'm not necessarily saying she does but she does know something about accruals concepts), there could just be a clash of methods. In my own position, I've noticed there's a difference between old and new schools in methodology - usually highly experienced but unqualified people against those who've undertaken current training e.g. AAT - and while the results might eventually be the same it can be hard to understand each other at times when methods clash.

Prevention controls could be to make sure everyone fully understands how accruals work and which G/L codes are affected when entering invoices & journals into a computerised system. If you can picture these, any adjustments will be easier to work out.

AK002

Or if what blobbyh above says isn't the case, then from my understanding (that if the invoice was Dr Accruals Cr PLCA) then you should as you say Dr expense Cr accruals.

It sometimes helps if you just take a step back, draw up some T accounts and go through it step by step - what should have happened, what did happen and what you need to do to correct it!

Helps me a lot in work !

blobbyh

AK002 wrote: »

It sometimes helps if you just take a step back, draw up some T accounts and go through it step by step - what should have happened, what did happen and what you need to do to correct it!

Yep, I agree with that. Sometimes have to do that myself if I've made a real pigs ear of something!

pinoyLiz

Thanks Guys

Hi guys! thank you very much.

It's ok now, I've corrected the code in the Purchase ledger control account back to Expense. I think this is just a miscommunication between me and her. She forgot (or didn't bother to look back) her accruals before telling me to accrue the invoice!
It's my first week on this new job so may be we are still both need adjusting lol.

Thanks guys
L

PGM

blobbyh wrote: »

What do you mean PGM? To my knowledge, any purchase invoice loaded into a computerised accounts system will credit to creditors by default, just as a sales invoice would debit to debtors. We don't use Sage, we use Iris Exchequer but they should fundamentally be the same. EDIT; no journal is being posted to creditors, it's just the way the OP has written their post.

I agree, I was thinking a journal had been posted to the control account.