I have just joined the organisation with a very poor book-keeping & accountancy record and noticed that accruals are effectively not being reversed (at all, ever!!). Hence, I have no o/ bal. (Dr) on Accruals in the financial year. The problem I have is that the number of them need to be reversed as they are not accurate, have no back up and relate to previous years (some Cr Accruals strech two-three yrs back). Anticipated event relating to these accruals have never happened, amount estimate is dubious and at the best it should have been provision.
As I can't reverse these accruals against o/b (obviously), so want to know if anyone has come across similar situation and what are the most appropriate adjustments?
Just in time for the year end and visit from the auditors....
I gather from your message that the year end is about to happen and that your accountants aren't already busy doing the year end adjustments? If your accountants are already busy with your year end then please don't post any journals and rather wait until they have finalized the year end. They should let you have the journal entries required to get the books right.
If you have not yet closed off the year end and would like to get the opening balances right then I suggest you to the following: Don't panic! :) Obtain the previous year closing Trial Balance and journal entries from your accountants. A copy of the financial statements would also be a good idea since it clearly shows what the retained earnings should be. Check to see if the journal entries have been put through the books by the previous bookkeeper during the current year. Hint: check the accumulated amortization since these balances will be wrong if the journal entries were not put through. Compare the Balance Sheet account balances on the Trial Balance with your opening balances (ignore Income Statement accounts). The simplest way to correct the opening balances is to put ONE journal entry through which reverses all INCORRECT BALANCE SHEET account opening balances (acual opening balance) and brings in the correct balances (as per closing Trial Balance). To balance the journal entry, put the difference to retained earnings. Do not post any journal entries to the Income Statement accounts in the current year since they will be wrong (the difference in the journal entry accounts for these). Note that your retained earnings should now equal closing retained earnings per your financial statements from the prior year.
Thank you very much for that. Of course it makes sense and I'm sure the numbers will add up. Current financial year has not been closed, and it certainly doesn't help some items have reversed throughout the year, but some did not. In addition, it appears that the whole year end proces in the previous year was very tatty indeed, with number of adjustments already made, so we'll see how it will stack up. Much appreciated.
