I have bookkeeping dilemma & would like to ask you guys to put a light on the following:
Each month my company, I work for, ask me to record on the cash book total outstanding invoices for each supplier payable by bacs but not cleared( on the bank account) until at least 2 months later.
On the system those are cleared (post as paid) on the last day of the month & automatically removed from outstanding creditors balance. I show them on the Bank recs as uncleared payments.
My question is, should those invoices be recorded on cash book at all when clearly they are not paid until 2 months later (not 3 or 7 days later) Personally, I would call this method of accounting "window dressing" as it artificial decrease creditors balance.
Your own view?
Thanks
-- Edited by MagdaS on Saturday 9th of February 2013 08:22:18 PM
Shouldnt be entered in the cash book until payment is made.
If I was your auditor and I noticed large payments not clearing at the year end in the last couple of months, I would question why, especially bacs payments which should take no more than a few days to clear.
I thought that this is not right but I have been told that this is a basic bookkeeping rule, which applies as well to cheques payments where for e.g. cheque is written but left in the drawer" & send off by post late.
Strictly speaking, if a payment has been issued e.g. cheque, but the recipient has not cashed it, then the creditor balance would rightly be lower, and the discrepancy would lie between your system bank balance and the actual bank account balance i.e reconciling item being 'uncashed cheques'. The same process applies to BACS issued.
However, as Mark says (and one of the scenarios pointed out by you Magda), if the payment hasn't officially been issued e.g. BACS authorised on internet banking or cheque 'stuck in a drawer' then the accounts would not be showing the true and fair view. From an accounting and extreme perspective this is fraudulently showing measures such as creditor days etc, and obviously at a basic level the balances owed - this could be a real issue if the company was bought out with the purchaser on the understanding that (say) £200,000 was owed, when in fact the balance was £2m!
As Mark says, any decent auditor should be all over this like a bad rash. Cheques are easier to hide as you would need proof of posting to challenge the audit team (with some people not cashing cheques for months), but BACS is a 3 day process no ifs/buts unless you have incorrect bank information.
Okay, fair enough. The reason I asked is that from what you described it sounded as though they might be showing payments on their system as early as possible - even though those payments weren't actually going to happen for some time - so that the VAT is reclaimed as early as possible. If they aren't on a cash basis, though, then that's clearly not the case.
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
Just out of interest Magda what happens on the other side of the cash book with sales receipts.
I can just imagine seeing a set of accounts where debtors day will be around 30 to 60 days and creditors days will be well below 30 days. Wouldn't make any sense!
