Just confused with the prepayments and accruals. I understand the concepts well, but when put into practise, it goes terribly wrong. I need these figures for month end. We have been using a excel spreedsheet for finding out the amount, but it all seems very confusing. Can somebody help me please?
Did you get sorted with this? Prepayments are relatively straight forward, they push costs into the period to which they relate and often apply to things paid in advance like insurance, subscriptions and rates.
Accruals are effectively the opposite, and make sure that costs are included in a particular period even if they have not been invoiced by the supplier.
PREPAYMENTS HAVE BEEN SORTED. I AM STILL CONFUSED WITH ACCRUALS. IS IT A NORMAL PROCEDURE TO USE THE LAST INVOICE AS AN ESTIMATE, WHILST DOING ACCRUALS? FOR EG, TELEPHONE. WE ESTIMATE 100 POUNDS EACH MONTH FOR TELEPHONE (ESTIMATING 100 FOR JANUARY 11, AS WE HAD AN INVOICE FOR 100 IN DEC 10). SO IN THIS CASE WE DEBIT THE TELEPHONE AC AND CREDIT THE ACCRUAL AC. WE DO THE SAME FOR FEBRUARY. AND IN MARCH, IF WE GET THE TELEPHONE BILL AS 450. WE THEN NEED TO REVERSE THE 200 IN THE ACCRUAL ACCOUNT BY DEBITING IT AND GIVING A DEBIT TO TELEPHONE AC FOR 250 AND A FINAL DEBIT TO ACCRUAL AC FOR 200.
I HOPE ITS THE SAME TREATMENT FOR EXPENSES THATS BEEN PAID WITH NO INVOICES. WHEN WE GET THE INVOICE, REVERSE THE ACCRUAL AND THEN POST INVOICE?
ITS A BIT CONFUSING WHEN THE VAT ELEMENT COMES INTO PLAY. COULD SOMEBODY HELP ME FIX THE CONFUSION. WILL BE SO GREATFUL.
Yes it tends to be normal to use the previous period's bill, although you need to be careful with things like gas, where the usage in the summer months will be significantly less than the usage in the winter months.
NB for accruals, ignore VAT, use the net figures (as VAT won't be a cost, assuming the business is VAT registered).
Can you get in trouble for having too much T9 stuff? It has never occured to me before but a friend of mine was worried about T9in things incase he got in trouble with HMRC?
No trouble coding lots of stuff to T9 providing it is genuinely outside the scope of VAT which accrual and prepayment adjustments definitely are as they are just estimates.
Trouble would occur if you code items as T9 when they should be T0 (zero rated) or more so T1 standard rated (when HMRC would lose out on VAT if you coded sales that way). Dont think they would be to bothered if you coded purchases/expenses as T9 as you would then be underclaiming your input VAT and paying more VAT that you need to.
Have never known a VAT inspection to highlight when you are underclaiming your inputs.
