UK Supplier Liability

[matt200190]

Good Morning All,
First time poster here!

I've inherited a set of accounts and there are a lot of invoices missing on the system - even though we have paid these historically (e.g. those that have left by direct debit / standing orders).

This means that there hasn't been a double entry crediting accounts payable, and debiting the relevant profit/loss (or I&E) account.

If I were to backdate these, and correct the accounts by posting these entries could someone explain how this would effect our profit for the year, and thus our tax liabilities? Would I be correct in saying that by putting these double entries through we would be decreasing our profit and thus our tax liabilities would decrease?

Thanks in advance.

 

[Kat Maple]

Are you talking about doing this for items that have already been paid or are to be paid in the future?

 

[matt200190]

Hi Kat,
Thanks for responding.

These are items that have been paid between 1 month ago and 5 years ago (some go back a long way)!

 

[Kat Maple]

Leave these alone! If you enter them into the books now you will incorrectly double the original expense. And, to be direct with you, you should already have known this.

 

[matt200190]

Leave these alone! If you enter them into the books now you will incorrectly double the original expense. And, to be direct with you, you should already have known this.

I’ve only started one week ago, so hoping it’s not my fault!
There was no original entry to the P&L so unless I’m missing something there has to be an entry. The original entry was credit bank and credit AP (balance sheet)!

 

[Kat Maple]

You gave both sides of the entry as credits. Please fix so I know what was done.
And are you saying the A/P account still holds the credits for items that were already paid?
So if you do a reconciliation of the balance of the A/P account you are positive that these paid items make up some of the balance of the A/P account?

 

[matt200190]

You gave both sides of the entry as credits. Please fix so I know what was done.
And are you saying the A/P account still holds the credits for items that were already paid?
So if you do a reconciliation of the balance of the A/P account you are positive that these paid items make up some of the balance of the A/P account?

Apologies! Credit bank and debit A/P.

 

[Kat Maple]

OK, since original entry to pay invoice was DR A/P and CR Bank, then there would be a problem if the invoice had never been entered. So yes the correction - to be posted NOW (current day - do not backdate) would be to DR the Expense and CR the A/P account. But again before you do this you need to create a listing of everything that right now makes up the balance of the A/P account. If invoices were never entered then you will see debit amount entries as part of your balance. And to correct that, you make a current day entry to DR the Expense and CR the A/P account. Yes, the effect will be a reduction of income so when you are positive you have this all correct you need to give mgmt a heads up before you post the correction.

And if things were this sloppy in such a simple account, then you need to review all the other balance sheet accounts as well.

 

[Kat Maple]

And you would be wise to wait to post the adjustments to the accounts until you have ALL the adjustments. Else if you post some adjustments one month and some the next then mgmt will see income zoom up and down and think you are out of control. So wait and post all in the same month.

 

[Fidget]

I’ve only started one week ago, so hoping it’s not my fault!
There was no original entry to the P&L so unless I’m missing something there has to be an entry. The original entry was credit bank and credit AP (balance sheet)!

It's a bug bear of mine when things are paid via direct debit/standing order because there is no invoice. So it means somebody needs to keep on top of it to do the monthly journal to post to the P&L. In theory, it's not difficult since you'll know which DD/SO are to which suppliers. But it can be overlooked and the journal doesn't get done, which sounds like what has been happening in your case.

In terms of your current adjustments, I'd just get the total hit of them to the P&L and post them in the current period. Back posting them will screw up any reporting that has been done on prior periods because the ledger won't match the reports.

A couple of things you might want to think about going forward though to avoid this situation happening:

* run a report on payables before closing the period end accounts - that'll flag any debit balances on creditor accounts
* standing orders are an exact amount every month, so can be journalled in advance for the duration of the S/O.