Net debtors in accounts?

JodieR

I've got a new Limited Company bookkeeping client and I'm trying to agree opening balances from the previous set of accounts. The previous bookkeeper had provided the accountant with a handwritten schedule of outstanding sales invoices at the year end, detailing the net, vat and gross amounts for each. In the accounts the accountant has used the NET figure from the schedlue instead of the GROSS figure. I queried it with him, thinking it was just a simple error on his side but he said that it's fine because they use cash accounting. They do prepare VAT returns using the cash basis, but I've never heard of that being a reason to include net debtors in the accounts. Is this really a legitimate way to prepare accounts or is he just trying to cover his mistake?

Newbie

Sounds like a bit of an excuse to me, in my experience regardless of the VAT scheme adopted the sales ledger amounts are always posted gross otherwise the ledger will lever match with the payments received.

Rozzi Rainbow

We do that in the practice where I work. As the VAT is calculated on a cash basis, so as to keep the VAT ledger correct, the debtors and creditors are entered net, to make the sales and purchases correct.

I agree that this is technically understating the debtors and creditors, but it's much easier to reconcile the VAT ledger if the YE balance equals the amount declared on the final VAT return. When the payments are received/made, the net amount clears the sales/purchase ledger balance, and the VAT is declared at the correct time under cash accounting.

I think of it as being similar to accruals or prepayments, these are always calculated on a net basis.

coojee

In our practice we used to do accruals and prepayments net of VAT but debtors and creditors were gross. At the year end we did a reconciliation of the VAT account to check it was correct, ie we deducted the VAT due on debtors and creditors from the VAT ledger account to check that the remainder agreed to the VAT actually due.

groundy

If you use cash accounting and are not running a sales ledger then Debtors would be included NET. However, if you are running a sales ledger then the debtors would be gross and adjustment would be required to the year end VAT creditor.

JodieR

Thanks everyone! That makes sense now.