I'm a bit stumped. Just received the final accounts back from the accountant and trying to calculate the opening balances for Sage. Last years accounts had a provision for Corporation tax but the actual amount paid is different (less) by approx £2K.
Should I leave this amount as a creditor balance, or make an adjustment? If I need to make adjustment any idea how I do this please?
The figure for Corporation Tax is as you say a provision. It is a best estimate as to what the tax liability will be. Obviously between the accountant first estimating the figure and then finalising the account there was some changes that brought down the tax liabilty but they didnt decide to update the tax provision for the changes.
Easiest way to adjust would be to set up an account called "over/under provision to previous years corporation tax" and clear out the balance in the balance sheet to this account. As the provision has been an over provision ie provision higher than actual liability then the journal to clear will be
Dr Balance Sheet Corp Tax £2k approx
Cr Over/Under Prov to Prev year Corp Tax £2k approx
This credit balance would be charged to the profit and loss account at the same place where the current year provision is charged ie effectively reducing the P&L charge for Corporation Tax for the year. Which if you think about it is right as last years charge was overcharged by £2k.
