I've been doing the books of a computer shop and have set up an excel spreadsheet with sales at the top - recorded each sales invoice seperately with a total at the bottom. I've also done expenditure at the bottom - recorded each receipt and then analyzed it across to a column such as phone, subsistence, repairs etc.
I've done a VAT column in the purchases even though the owner isn't registered for VAT. To be honest I did it to suit me because I'm used to working with a VAT column and thought it would benefit the owner to be able to see how much VAT he has paid on purchases.
Have I done the right thing setting it up this way? I'm used to having a bank rec box on the same spreadsheet, seeing as its a shop that deals mostly with cash would I not have to do this?
He has paid some of his purchases by card, do I need to record the cash and card payments seperately in the expenses?
I'm used to doing big company books with lots of VAT and mastercard payments. I never thought I would be so confused over a little shops books when I've dealt with lots of complicated things before
Also, I've noticed the owner has written on his sales invoices how much he paid for the item and then the amount he sold it for at the bottom. Should I be advising him not to do this? I would be a bit annoyed as a customer to see how much profit he has made on my sale.
I know it might be common sense things but its usually these things that confuse me the most as I have no common sense!
I'd tackle this by analysing the bank statements with a bank rec (which may be only a few items); as likely as not, this will be the best source of information for the books. Any expenditure not through the bank, you may call cash, although if the card payments are from a separate account (credit card), you might also want to include this in the balance sheet, and you can treat it like another bank account.
I've never seen a shop state the cost of purchases to the customer and he should thank you for advising him not to.
The VAT figure needs to be included in the relevant expense column, you can't provide accurate accounts without it being done that way and it will need to be like that for his tax return. After all if a purchase costs £1000 ex VAT, that's £1200 inc VAT and since he can't claim the VAT back he needs to know that so that he can work out what to charge the customer. For his tax return, the VAT needs to be correctly allocated according to what type of expense it is so that it can be allowed or not (possibly being subject to annual investment allowances rather than treatment as an allowable expense, for instance).
Having sais that I'm quite surprised to hear a computer show has a turnover that is not enough to register for VAT, (have you checked that?), but maybe if he is likely to have to register in the near future it would be worth recording the VAT figure separately for MI purposes as well as including it in the correct category?
Thanks for your replies. I think its the transition from a service company to a shop thats the problem and I think I tend to overthink things. This forum is a big help though and I'm sure I can do it.
I was advised by a friend (Accountant) to leave VAT out as he isn't registered and it won't affect him???? But this didn't sound right to me and I'm used to dealing with VAT so it would have been much harder for me not to include it.
The only other thing is the VAT on sales. I'm used to dealing with this also but now he doesn't charge VAT its a bit unbalanced to me as I am only showing VAT on purchases. Is this right though? He can't charge VAT so I don't need to do anything but record sales?
Someone else I know who owns a computer shop (I'm not doing those books thankfully) admitted he doesn't record all cash sales and keeps the money for himself sometimes so its tax free. I suspect that what this computer shop is also doing as the sales every month are barely a wage, I have no idea how he affords the rent and bills and has money to live on.
The accountant must have meant for you to ignore both sales and purchase VAT and just deal with gross figures until / unless the client registers for VAT. As Ruth pointed out though, your system is handy should he register at some point.
Strange isn't it how clients forget sales but remember to include all outgoings. The trouble with this is that the cash account can show an impossible overdrawn balance.
It's sensible to always analyse the bank statements. Have a think about the household income and savings of the proprietor. Can they live off it? Is there another wage coming in or state benefits? What sort of private outgoings do they have - utilities, motor; include holidays, Christmas, cigarettes and alcohol if they drink or smoke; in short everything.
I've not done so but you could try googling usual mark-ups for small computer shops. You might find repairs have a greater mark-up (when not fiddled) than hardware and software goods sold.
These types of cases can be most interesting so keep your ears peeled for any info like "we're off to the Seychelles next year", and see if you can estimate what the stock on hand might have cost.
To analyze across in the cash book spreadsheet I have: Date, Description, Gross, VAT, Phone, Repairs and Renewals, Stationery, Post Office, Fuel, Motor Expenses, Subsistence, Sundries.
I haven't come across any bills for Rent or rates, should I ask for these details and include them in the expenditure part?
There are a few receipts for flowers (to his partner) and some for alcohol. Can these be included as gifts or should I give these back to him?
I have entered cash sales separately, should these have been entered as a full figure or would it benefit to see each transaction?
As its alot of cash sales and purchases (there are the odd few cheques received and card payments) do I bother with a bank reconciliation? Do I have to do one or do shops like this not require one?
Am I allowed to give him a brief Profit and Loss? He is getting divorced and his solicitor needs to see his books. Does it have to be one done by his accountant or will mine be ok?
How do you present the books back to them? I have bought a few lever arch files, one for sales, one for purchases.
Thanks in advance I'm sure there'll be more along the way.
Yes, small and new businesses are liabile to make ommissions, so you should ask about Rent. He may be entitled to the business Rates holiday in operation at the moment, but ask anyway; there may be some paper work. Some of the flowers might have been used to decorate the shop, so ask if there is any element of business use.
Alcohol, is not deductable as a gift, and in my experience is often for private use, so I am wary about claiming VAT. Have a look at the bill. Last Christmas a client bought spirits, wine and beer along with tonics and mixers from a cash and carry. The presence of the tonics and mixers convinced me that this was a private shopping expedition.
As you already have concerns, I would identify your cash sales in some way as to trace the balance of the cash account. eg. Sales to Cash, Cash to bank, cash to expenses by date.
As already stated, always analyse and reconcile the available bank account and this should be a dedicated business account. I didn't realise your friend was the accountant to the shop, so you should rely on his/her instructions regarding the solicitor and VAT etc. best wishes Tim
Hi Tim thanks for your reply. I've noticed he has used a personal bank account on occasion too so things are a bit all over the place. Rather than it being one bank reconciliation should I do two seperate ones just to trace back to each transaction?
Having had another look at the flowers receipt they were for his partner so I will not include this and the alcohol ones.
I suspect he won't have put the cash into the bank. The other computer shop spent the cash straight away. Could I just do sales to cash, cash to expenses?
My friend isn't the accountant at the shop sorry I think I've worded it wrong. I meant am I allowed to do him a brief profit and loss for his solicitor to give them an idea or should it be a proper one from his accountant?
Might be an idea to mention that the Revenue may ask for statements from all bank accounts used in the business. He could object to supplying you with those personal ones but separate invoices that are paid through the regular bank account and treat the rest as cash. Its fine to spend the cash without banking it. You should try to ensure the cash balances before handing over to the accountant.
Have a look if you can account for all deposits made to the personal account. Any cash not accounted for will end up as drawings and this is the reason for thrashing out the missing expenses such as rent.
Does he have sufficient cheque/switch sales for the amount of deposits into the regular account? Go in with an open mind and just because the other shop admitted he doesn't record all sales, doesn't mean to say this guy hasn't. Check the paying-in books and statements to confirm no cash has been deposited.
Has the solicitor written direct to you? If so, I'd clear your reply with the accountant first.
I don't know why you didn't remove the whole post Shaun. It is just a copy of Ruth's post above. (Or below - depending on how you have threads sorted).
EDIT : I see your explanation on another thread.
-- Edited by Peasie on Saturday 10th of September 2011 04:00:48 PM
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