What I'm trying to do is match bank transactions to payments made for supplies & purchases. In most cases (e.g. a UK purchase), this is straightforward. For International purchases, its impossible as payments went through an intermediary and linking those to actual invocies is proving impossible. An intermediary was used to obtain better FX rates on the day and obtaining a statement from them is impossible.
I am 're-working' this Customer's accounts going back 3 years. The Customer didn't bother with bank reconciliation preferring to work off actual invoices they had to hand. So no, the bank account was never reconciled.
And finally, both the Sales & Purchase ledger are sterling accounts.
-- Edited by tnt11 on Sunday 17th of June 2012 04:33:32 PM
Hi everyone, this is my first post and I was hoping to find the correct way to reconcile invoices from 2009 (in prep for a VAT inspection).
A Supplier (China) has invoiced a Customer (UK) in USD and payment was made via an intermediary FX provider in 3 instalments over a period of 2 months.
Paying suppliers via an intermediary is a common practice for this Customer and although the Bank Statements (which I have) show payments to this intermediary (the FX provider), its impossible to trace which invoices these relate to.
My question is:
When reconciling, what GBP value can I use seeing as payment was made based on 3 different FX Rates at the time? (i.e. 3 instalments)
Would it suffice (for a VAT inspection) for me to obtain past FX rates and simply apply the correct rate at Date of Invoice? This wouldn't reconcile the Bank Account accurately but I assume I'd be within 5% of this.
Aaaa I see how your suggestion could work but we're talking about +150 invoices per quarter (in USD) and yes, payments do overlap different accounting periods. I've been advised to take an average FX rate for a quarter and use that continuously for each invoice. This, for 2009/2010/2011 varies from 1.5 ~ 1.6 USD to the pound meaning it'll be within 5% of the bank figures. As for reconciliation, I've also been told that no VAT/TAX inspector will physically count/sum the ledgers so it's the safest option based on these crude set of accounts.
-- Edited by tnt11 on Monday 18th of June 2012 12:27:30 AM
I'd post the actual payments made to the intermediary to the Chinese suppliers purchase ledger account. If you add up the total value of all the $ invoices you can work out if the rate looks sensible.
That way the bank account will reconcile properly and you don't have to worry about gain / losses on forex, as the Purchase ledger is held in sterling I'd post the $ invoices translated at the same rate as the £ client paid the intermediary.
The only problem I can see, is if you have payments straddling invoices relating to different accounting periods.
__________________
Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
The whole reconciliation effort is to obtain an accurate (or as close to) Box 7 figure (Total Value of Purchases & Inputs). Whilst this has little to no bearing on the VAT paid/reclaimed, I didn't want a scenario where the VAT inspector sees £100k debits from the Bank Account (in a quarter) with Purchase Invoices totalling no more than £70K. Similarly, £150k in Sales with only £120k worth of invoices. Fortunately, the Customer has all their C79s and these make up 90% of their Box 4 figure (with the remainder going in for stationery and the usual expenses).
Using average FX values, I am now getting to within 10% of their Box 7 figures which is good (although not accurate). Had they done what you do with your Travelex account, we wouldn't be in this mess.
On the Sales side, I'm seeing an average of 50 invoices a quarter. The customer opted to sum all invoices manually (each quarter) to obtain their Box 6 figure. Bunged into Excel, they're relatively accurate and within 5% of the true value (barring silly errors such as charging VAT for the odd sale into Switzerland etc.). I wouldn't have thought the VAT Inspector would calculate the total for all 50 invoices but we'll be doing the right thing and notifying them beforehand (but deliberately withholding our EXCEL summations which I'm not sure is the 'moral' or 'ethical' thing to do - please advise?).
With values entered in Box 8 (EC Sales) and in the absence of any submitted EC Sales Lists (no submission for at least 4 quarters), we're bracing ourselves for a fine. Half of their EU Customers are VAT registered so B2B VAT in the EU was never charged. This is another headache for which we're trying to engineer an excuse but in reality, it was as simple as the Customer simply didn't understand what to do.
The joys of Bookkeeping!
-- Edited by tnt11 on Monday 18th of June 2012 10:06:27 PM
A little confused still as to what you are trying to get to in the end, as yes it is very normal practice to use an intermediary company to do Forex trades as rates are far better than banks.
We use Travelex, now Western Union, but we do keep a record on each transaction in software notes and on physical document copies to show what invoices each trade was to pay for.
That said, this has little final reference to anything to do with VAT and hence my question.
I am sure VAT inspectors will want to see an audit trail of some sort, but the key to this and VAT are the C79 forms issued by HMRC to show VAT charged on import of goods that the importer then reclaims as they would VAT on any purchase (assuming of course they are VAT registered),
The amount of VAT on these C79 forms bears no relation to the actual cost of the goods paid by the importer as the VAT charged by HMRC is calculated at customs entry and is related to the cost of goods at exchange rate on day of import, plus cost of freight.
Aside form your attempts to create reconciled sterling accounts, what the VAT inspector will want to see is copies of all the C79 forms to confirm the correct amount of VAT has been reclaimed each VAT period.
Sorry if I've got wrong end of your question, but it was the mention of VAT inspection and not HMRC tax inspection that made me concerned about the seeming lack of records, as VAT inspectors will certainly want to see these forms to confirm the values tie in with claims on VAT returns.
