I have a question..... If an invoice is paid in full by cash but then only some of the cash paid in to the bank for example: Invoice £260.00 amount showing on bank statement £245.00, where would you show the £15 in the accounts.
Because of the incomplete records that are maintained by this particular client I do not have any debtors accounts, I just work on a receipts and expenses basis, so I am literally going through the invoices and matching them off with the deposits on the bank statement.
I agree with everybody :) but the 'pocket' IS the cash account. They often do not record drawings and small purchases may also be recorded as paid from the pocket.
There is always a cash balance which is partly recorded by cash withdrawals from bank; from cash purchase invoices; when a customer pays by cash and all these should be entered as such.
One might choose to show a zero cash balance at the end of the period by debiting the whole balance to drawings although in most cases I'd say that is painting a false picture.
Vicki, I would be charging him for a sales ledger service if it is absolutely necessary for you to match them.
Well I don't suppose it is necessary for me to match them Tim but I really like to balance off the bank statements at the end of each month, I can't do this if I record the invoice totals because they don't tally up with the bank statement. I don't feel it would be the correct thing to do if I ignore the invoices and just post the deposits on the bank statement. Also how do I tell which invoices aren't on the bank statement and which ones are and which ones have been split, it's a right old mess!
Also how would you treat the cash account at the end of the period without debiting drawings with the balance? I only ask because this is what I have done before with other clients, would you just leave the balance in the cash account?
I really like to balance off the bank statements at the end of each month, I can't do this if I record the invoice totals because they don't tally up with the bank statement.
I'm not completely certain why you might not balance the bank if you also record invoice totals, but would like to understand and help if I can. This might be a particular system foible that I'm not familiar with.
SALES What you're doing appears to me to be an extra, optional service. A lot depends on the client and how many sales there are but you could send a list of invoices reconciled with any obvious matches for his comments. If say, he doesn't write who it is from on the pay-in slip then you're up against a brick wall. He may tell you that a discount has been given here and there or he kept the extra in which case you'd add that amount to sales. Most of the time, they will have a very good idea of who owes what. If they don't, they are free to pay you for your time.
CASH BALANCE Although you might not be given a closing cash balance figure, you can draw conclusions if: i) he'd withdrawn say £400 late on the final day of the period ii) he had not banked anything for a fortnight iii) there were deposits immediately after the period. iv) Often I would err on the side of carrying over a large cash balance (within reason) as they have a habit of spending much cash than they've apparently got later on!
If there were thousands in the cash account and the client confirms that that sort of balance is never held, then it's probably sensible to debit a round figure to drawings but leave something in according to i ii and iii and especially iv.
Let me know or anyone else what the first paragraph means and I will give it another shot. I've got another suggestion but will try to get past any other issues first.
Ok let me try and explain again, thank you for being patient with me!
He has passed over all the sales invoices for the year and his bank statements The payments paid in on the bank statement don't have any reference to the invoices whatsoever, the ref normally is the bank it was deposited into and the town. Some of the invoices have been paid into the bank in full and I can identify which are which just by the total of the invoice alone. Some other invoices have been paid in two or three at a time which I have also been able to identify which ones they are on the statement. But then there are invoices that I can't even find on the bank statement so I wonder whether cash was paid and pocketed? In full from just looking at the money paid into the bank and the total income from all the sales invoices i'm about £10,000 a drift.
Thank you for the advice on the cash balance I will definitely keep that in mind for the future.
Might it just be a case of asking which invoices were outstanding at the Y/E ? Show him the list of the obvious reconciled matches and ask about the others - often as not, it's just the last handful that are still owed and he'll know any that are long overdue. Any that are not outstanding must, of course, have been paid somehow and you can call these cash.
After this, it's worth considering if he's earned enough to live on, given other household income.
Sorry for the late reply I have been extremely busy this weekend and not had a chance to come on and have a look. Thank you for your help all of the above I will keep in mind for future ref. I have arranged a meeting with my client so hopefully we will sort this issue out.
I can't add that much more advice than Tim has been giving you, but I can say that you can never be too thorough. (Well, in my opinion anyway). I would continue pestering him for missing bank statements as although you say you will leave balancing the bank until the end of the year and not every month, if you don't have the bank statements then you won't really be able to do this either. I consider bank reconciliation one of the most important aspects of bookkeeping, otherwise how do you spot if you (or indeed the bank) has not made any mistakes? Or included everything? Does he not keep deposit books?
The bank will probably charge for obtaining duplicate statements, so this might make him more likely to be careful in the future and not lose them! Obviously as bookkeepers sometimes we have to work with incomplete records, but there's a difference between incomplete records and a complete mess....
Keep pestering!
Pauline
Edit: Damn, Tim and I must have been posting at the same time! RBS is definitely 16
-- Edited by Stardoe on Wednesday 18th of July 2012 09:20:16 PM
I hope you don't mind me getting in contact again. I just would like a bit of advice if that's OK?
The particular client I have been dealing with, I have now noticed hasn't got all of his bank statement sheets, so I am finding expense receipts that are no where on the statements because I don't actually have the particular sheet that they are on. The thing is Tim I have only just started up on my own and really don't want to lose this client, I don't want to pester him for documents that I think that his old bookkeeper must have just found ways around.
I'm really frustrated by it all because I am used to bookkeeping for limited companies where everything is accounted for to the last penny and the accounts are kept incredibly tidy.
Do you think I am being too thorougher and should maybe just work with what he has going through his bank account and ignore all the supporting documentation or would that be a big no no?
With regards to the invoices being paid in to the bank, I have managed to kind of balance it with debiting the cash account with about £200.00 so I 'm happy with that. I will just have to balance the bank statements at the end of the year rather than each month.
Not at all, I've been privileged to be able to draw upon vast experience for questions very similar to these and the same goes for specifically being asked for on a public forum.
I can see you're on a tightrope wanting to retain this client, but I will say that as a rule of thumb, always see every bank statement for a dedicated business account. When you get a couple of more clients I would begin to insist on a) a dedicated business account and b) sight of every statement. The tightrope will always be there. What happens when you get a millionnaire client later on?
I have argued on a VAT posting this week for giving leeway but that was because I see a tax system as unworkable if every last thing has to be documented and audited. It doesn't.
How many weeks of 52 have missing bank statements? If it is 3 or less weeks then I might occasionally rely on re-drawing the transactions if all the pay-in books and cheque stubs are available. Start by drawing up a list of S.O.'s and D.D.'s by date, checking the previous and subsequent amounts on the available bank statements. Are pay-in slip numbers given? If so, you have a good idea how many deposits have been made. It's surprising what you can glean from bank statements, including the time of day for cash withdrawals and at which branch transactions were carried out.
Anyone know the bank ID numbers - isn't RBS 16 and Barclays 20?
Your signing off certificate for sole trader accounts should be words to the effect of "from the books, vouchers, bank account of the business and from information and explanations received, without audit.....". In one fell swoop you make it crystal clear to the client and any reader where responsibility for accuracy lies. The client is responsible, each and every time.
What sector is the client in?
kind regards
Tim
PS I had a Reiki treatment today by my dearest (blatant advertising) when I was feeling under pressure with a back duty job with reams of missing bank statements and sales invoices.
I am going to ask him to get the missing statements. There is no way of me being able to create what is missing on the statements because he has private transactions running through his business account as well. He doesn't hand over a paying in book and on the statement the reference of him paying in chq or cash is the same it normally says 'deposit re (the branch), deposit number. He must have the paying in book otherwise the bank wouldn't be generating a number without it, I think I need to ask him for it.
I am hopefully meeting up with him next week so hopefully I can get some more documentation from him. I must say Tim in moments like this Reiki sounds like a brilliant idea. I'm glad that you both agree with the importance of keeping everything in order and organised, I don't function well in mess.
Even if he had premises, Sales are the crux of this job. Purchases, motoring and other overheads will have comparitively little effect on the tax bill. Taking Sales as a starting point, if you enter all the ones he has handed you, and show him a monthly graph or monthly totals, then you have a starting point for asking him to explain the gaps. Place the ball firmly in his court to explain what he lived off where there are little or no sales (drawings).
Even if you get all bank statements, there might still be income gaps when he was paid cash. Either way, the responsibility for inviting an HMRC enquiry is his and always will be. Couch your questions in these terms : "don't you think it would be wiser to declare at least some sales for xxx and xxx months?". Usually they crumble and the reason for the missing records becomes clear; clumsily hiding income. Even then, it is not essential to obtain bank statements, but he must declare income to cover deposits there and drawings.
So, think in terms of the biggest numbers first, most often sales and drawings.
At the end of the day, you may not wish to sign off accounts, but this doesn't mean he cannot submit a tax return. It does, though strongly suggest a Money Laundering suspicion.
Regular standard letters will take away any doubt about the minimum records you expect each year.
Try Googling "incomplete records". There's a couple of Youtube videos. The main value of this client may end up being this learning curve. I have some mark-up statistics at the office and I will post again if these cover decorators.
