I produce management accounts on a monthly basis P&L, Balance Sheet.
What is happening is a colleague is posting purchase invoices dated for prior periods into those periods, for example invoices dated in February are being posted to February even though the month end has been run.
Invoices are also being posted to our last financial year even though the accounts have been audited and closed.
I have had a very long discussion with them because the P&L and therefore the PL on the BS is constantly moving. My colleagues argument is the accruals concept which I do understand, am I correct in thinking that an accrual should have been posted at the end of the prior period to allow for these late invoices or should the invoices be posted into the current period with a note of the invoice date.
Any invoices relating to prior reporting periods once the period end has been run, should not really be loaded into the prior reporting period, but loaded into the current reporting period.
If he knew about these invoices, then an accrual should have been posted in the previous reporting period so all is well as it will be accounted for and offset against that invoice loaded in the current reporting period. These invoices can be loaded as at the 1st of the month or period and the original invoice date can be noted. This will provide good relevant info for recording after-date invoices at the year end.
However, if they he is loading accruals and then loading the invoices in the reporting period, this is incorrect and he is in the wrong as it will be double counted.
If however they are not providing accrual info on these invoices, but instead just loading these late invoices in the reporting period, then there is something seriously wrong with your processes.
I would suggest you communicate with your colleague to ensure the correct action to take to ensure that any missing invoices are accounted for correctly either by accrual or loading in the current reporting period only.
Hope that helps. Sorry for only saying "he".....too lazy at this time of night to put "he/she"
Would agree with the above in that once a period is closed any invoices for that period should be posted into the next period with relevant info to explain why this is done.
This isnt so critical if it is within the same accounting year as this is just really figures for your own reporting purposes.
What is important is the invoices arent posted back into the prior year if it has been closed off and audited as this will throw out the opening balances when your auditor looks at the current year's accounts.
This is a problem with open period accounting systems (ie sage lin 50) as apposed to closed period systems (sage 200 etc). However, I usually prepare management accounts based on the change from the last produced to the current position. I don't personally believe that an acounting system can simply produce a set of true management accounts unless you post all of the adjustments for accruals & prepayments accurately each period.
Having said that, the accounting standards and accruals concept require that revenues are matched to expenditure. I believe the invoices should be posted with the actual dates as this is the tax point. If you post with an incorrect date your creditors aged balances will be incorrect and you will not know when they are actually due for payment.
If the amounts relate to previous years then they should be identified as such, but if the year has been closed this should happen anyway.
I believe it is standard practise to go through all delivery notes at a month end so that accurate accruals can be prepared.
If you are producing management accounts so early that you are missing these invoices, then those management accounts cannot really be accurate unless you adopt a proper accruals process. Producing management accounts really is more than just printing a report, the person producing them should really have an understanding of the business, know what the usual GP is and hence be able to recongnise when items are missing.
Sorry if this sounds like a rant, it's not intended to be, I suppose it comes from many many years spent at board level and producing management accounts for both internal and external agencies which required considerable knowledge of the business as they were subject to much scrutiny as major financial decisions were based on them.
-- Edited by annepebo on Thursday 24th of March 2011 09:48:09 AM
I am inclined to agree with you - I don't think it is a rant by the way!
I remember in my audit days that larger businesses have this obsession to close off as early as possible at the end of the month, despite not receiving a significant number of invoices. Most modern systems should cope with real time and accurate processing of data i.e. showing the right invoice date. My advice would be to wait a couple of weeks from the end of the month to ensure you have captured all of the relevant information. The management accounts can then be produced and will be much mroe meaningful.
__________________
Phil Hendy, The Accountancy Mentor
Are you thinking of setting up your own practice or have you set up and need some help?
If so a mentor may be the way forward - feel free to get in touch and see how I can assist you.
I used to work for a company with a US quoted parent. Because of US reporting laws, I only had 7 day from month end to finalise my figures and get them to my US counterpart to incorporate them into his figures as he was on really short reporting deadlines there. The US auditors used to turn up to do the Audit , 1 week after year end! When I first started, I contacted every supplier who was always slow in issuing and sending the invoices and told them that if they wanted me to process them promptly for payment they had to arrive within 5 days of the date on the invoice. If the invoice arrived later than 5 days after the issue date I would automatically process the invoice as being issued on the date of receipt and of course that would also delay when payment would be due! Of the 200+ suppliers we had, 99% of them made sure I received the invoices by 5 days after the invoice issue date! I knew who the 1% were and I just did an accrual if the amount was "material". I found that the businesses that were always slow in getting their invoices out, were the first ones to get into financial trouble.
-- Edited by YLB-HO on Thursday 24th of March 2011 02:59:54 PM
I would be grateful if someone could advise me.
