Extended Trial Balance - how to get ledger balances to agree at the bottom

RS1069

Hi I haven't been to college for a few years and have a client who set up a business and I am just doing his first year end. When I add the ledger balances to the Trial balance I am confused because the totals don't add up. He has not put in any capital so it is basically just sales and purchases and overheads. What do I then put in to help the columns to balance. Do I actually add the profit in the first two columns.
My next question is how do I treat his drawings which were his wages during the year? He has not put in any capital but he has used profits to purchase the premises on a weekly basis. He has also drawn his wages.

RS1069

Again with the query above, what I am trying to say is that in the left hand opening entries columns for CR & DR when I have added in all the sales and expenditure (it is a cash business and I don't get to see the bank statements) the figures don't balance, this is obvious because there is bound to be either a profit or a loss. So what do I put in as a balancing figure? Would it be suspense, would it be capital introduced, would it be drawings? As far as I know there was only £170 introduced in cash to start off the business. During the year out of the profits £6000 was spent on buying the goodwill. I presume that goes in as DR and as DR in the balance sheet.

RS1069

Thanks, its a sole trader who does his own cash book and I check each receipt against entries. Bank statements are not necessary as he has a market stall type cafe. People always pay by cash.
The agreement is purchase of the goodwill at £125 a week for 64 weeks - which will be £8,000 in June.
I have done the accounts and have all the figures. My query is if you feed in the sales and purchases in the opening columns of the ETB in the DR and CR and there is profit or loss, do I put that profit in (in this case there is a profit) to balance the columns, because it would have been in a trial balance. There is no capital brought forward, and just £170 introduced. I just haven't done an ETB since college, so a bit rusty.

RS1069

Its always best to use a bank statement but I have worked for two chartered accountants and some clients with cash businesses never provided a bank statement.
My client keeps comprehensive clearly written records, and I am satisfied that he is acting with a duty of care over his business.
My own self employed bookkeeping business is based on invoices and receipts and not on my personal bank statements.
I am happy with the goodwill and the liability for the final 11 weeks still due.
I am just not understanding the opening columns of the ETB as far as balancing the two figures at the bottom of the column. Do I just treat it as a trial balance and put in the profit acquired?

RS1069

On the balance sheet I will put the cash left at the end of the year. I have that figure. I appreciate your help.

MarieNoelle

If income and expenses have been properly accounted for and goodwill properly recorded from the capital account, then yes your balancing figure should represent your profit or loss.
Also remember that no wages can be taken and recorded as expenses. They are just drawings.

Like mrme89 I would want to satisfy myself that I could reconcile the takings with what has been cashed in at the bank, or at least check the source of all income on the bank statements.

RS1069

Forgive me MarieNoelle, the goodwill was paid with profit weekly as the year progressed. So would you agree that is not capital introduced, but as Mrme89 says the profits will be added to owners capital account. I agree about the drawings.

RS1069

I am just saying that no capital was introduced in the year. The goodwill (which now turns out to be fixtures & fittings) was paid for weekly out of profit. I have now balanced the ETB and it looks fine, but because I have treated the F & F as capital expenditure it is not appearing on the profit and loss but on the balance sheet, and therefore there are fewer expenses and more profit meaning more tax. Seems unfair. Do I have to treat as fixed assets, or can I just treat as expenses? The difference is £6000 paid out, meaning £1200 more tax to pay by not showing in expenses on P & L.

CeeJaySix

"I have treated the F & F as capital expenditure it is not appearing on the profit and loss but on the balance sheet, and therefore there are fewer expenses and more profit meaning more tax. Seems unfair. Do I have to treat as fixed assets, or can I just treat as expenses?"

Sorry, but that's the way it works! Whether you can treat it as revenue expense depends on whether it is, in fact, a revenue expense. There are plenty of resources online to help you define what is capital and what is revenue if in any doubt.

Capital allowances may be available, and if qualifying for AIA, there will be no difference in the tax charge between the two treatments anyway.