Year End Accounts

KPM

Hi All

I have taken on the accounts for a friend because their accountant is no longer around. I am struggling to understand the creditors balance on the balance sheet, this is far in excess of the amount that I have calculated for closing balances for each creditor. If I enter the amount I have calculated this does not then balance with the capital and reserves. Any assistance would be appreicated. Explanations etc as to why this might be.

anniem

Has an overdrawn bank account ended up in there?

Rachel

Or the Directors account?

groundy

or loan / hp balances

Monsoon

It could be anything.
You say the previous accountant is 'no longer around.' I take it you therefore can't contact them at all to ask?

Your friend should have at least half an idea about what it could be. Their previous years' records could hold some clue.

Alternatively it could just be wrong.

As I said, it could be anything!

Sorry - I know that's not very helpful..... but hopefully it is a bit!!

KPM

Previous years accounts are not helping as they all have a high creditors balance. The company has no long term liabilities, no overdrawn bank balance. I have separate figures for the Directors loan account, vat liability, corporation tax, deferred income etc. My only conclusion is that the company transferred over to a new SAGE system a few years ago which resulted in duplicated records. The error has probably occurred there but I am just not sure how to rectify it.

imeldabye

what kind of business is it? does it represent deposits from customers?

Monsoon

KPM wrote: »

Previous years accounts are not helping as they all have a high creditors balance. The company has no long term liabilities, no overdrawn bank balance. I have separate figures for the Directors loan account, vat liability, corporation tax, deferred income etc. My only conclusion is that the company transferred over to a new SAGE system a few years ago which resulted in duplicated records. The error has probably occurred there but I am just not sure how to rectify it.

Assuming the profit and loss accounts were accurate in prior years and its only the balance sheet that's off, I would cr reserves. Other than re-doing all past years or carrying forward the wrong creditors figure I don't see what else you can do. Is it a material amount?

wildgoose1uk

Assuming the accounts were filed I think you have to assume they were correct. It would be a massive amount of work and inconvenience both to you and the client to start going over them again.

Assuming the accounts are computerised are you able to drill down on the creditor figure to get a breakdown of what makes it up? If you are convinced it is wrong and nothing has been included that should not be there I would write off the difference.

Monsoon

wildgoose1uk wrote: »

If you are convinced it is wrong and nothing has been included that should not be there I would write off the difference.

Where would you write it off to? Just wondering if others agree with my Dr creditors Cr reserves suggestion.

groundy

Monsoon wrote: »

Where would you write it off to? Just wondering if others agree with my Dr creditors Cr reserves suggestion.

Don't agree

If as suggested items have been duplicated when transferring SAGE then purchases or expenses will have been duplicated and therefore earlier years profits understated. If there is any need for a write off it would have to be to P & L, increasing current year profit.

Monsoon

groundy wrote: »

Don't agree

If as suggested items have been duplicated when transferring SAGE then purchases or expenses will have been duplicated and therefore earlier years profits understated. If there is any need for a write off it would have to be to P & L, increasing current year profit.

But if it can't be proved where it came from, and we are assuming prior years are correct, without going through the prior years, it doesn't seem reasonable to overstate this years' profit without being able to specifically identify it.

[Groundy, I also agree with you as well - but my point is that we just don't know!]

wildgoose1uk

I think the best that can be hoped for here is a decision based on probabilities and assumptions:

1. Other avenues having being checked it seems logical that it seems to have been an error when transferring to a new system (this is one reason why it is useful to run the new system alongside the old system for while);

2. Given it is a creditor balance then it does seem sensible that Purchases or expenses will have been overstated;

3. The balance of probabilities seem to therefore fall on the side of profits having being understated;

4 However, the transactions occurred a number of years ago and to correct it now through the P&L would misstate the performance of the company for the current year;

5 However, not to correct it would misstate the performance of the company as a whole.

I think the important thing is to be able to backtrack in the future and for you or others to understand what you have done and why. I think that on balance I would increase the profit, I would do this by having an account for write-offs that would either increase or decrease profit depending on circumstances. Depending on materiality you may also wish to include a note in the accounts.