OK, I have a slightly strange situation in which I have records for a company from a certain point but none for a previous era of trading. It is impossible to get the records from the earlier period.
Now, luckily things are very simple in that company has just one asset, a bank account that starts at 0 balance. However, the first transaction coming in is a repayment from HMRC for VAT due from a previous year. Call this amount £1000 to keep it simple.
So in effect the company started with an asset of £1000 - the debt from HMRC. So if I debit the VAT Liability account with this amount where does the credit side go?
It's a limited company with 2 directors.
Do I need to mess with the equity accounts (assume I'm doing this on Sage).
Not strange at all. I would say that the situation you have is basically the norm.
But you have the previous periods accounts, yes?
If not the real benefit of limited companies is that they file their accounts with companies house.
The downside is that small companies only tend to file abreviated accounts at companies house although they will have filed the full accounts with their tax return so, unlike with sole traders you know that the full accounts exist.
Do you have access to the previous accountant. Have you sent them an ettiquette letter asking for the basic information that they are obliged to give you? (The last full set of accounts and the trial balance upon which such is built).
If you can get those then your life becomes much easier.
No, you don't play with the entities equity. The £1000 is a balancing refund meaning that the VAT account was £1k down and the £1k refund brings it back to zero. The flip side of the receipt of 1k into the bank will be the VAT due account which will have had a 1k debit balance.
Not seeing how you believe the business to have no assets appart from the refund as the refund will have been based on something. What was the cause of the refund?
All of the information that you need will be out there. Talk to the client to find out what they have and who has that they do not.
HTH,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I'm with Shaun here in that there must be some historical financial information on the business if it has been an ongoing concern over a number of years. If you are desperate to get things to balance, use the accounting equation where, in its basic format, Assets = Capital (dr bank - cr capital). You do need more information though as I'm sure a rebate from HMRC is not all that needs posted.
They have never submitted any accounts to companies house because this company is still in its first year.
No accountant has looked at this yet, it's been these two directors bumbling along and not keeping any records.
They registered the company for VAT because it is connected to another company they have that put them over the limit.
Basically, they made a load of purchases, claimed the VAT. Then they left it for a bit. Then they hand it over to me when they want to start using this company again and the first transaction is the VAT due from HMRC.
It's a messy situation alright.
I'll have to press for further records, but as a kind of technical exercise, if we assume I can't get them, what would be the double entries?
Let me have a crack:
BEFORE RECORDS:
They transferred some money from themselves into the company:
Dr Bank
Cr Directors Loans
Bought some goods:
Dr Purchases
Dr Purchase Tax Control Account
Cr Bank
Made the transfer:
Cr Purchase Tax Control Account
Dr VAT Liability
WHERE I START:
The VAT payment comes in:
Cr VAT Liability
Dr Bank
other transactions I'm not worried about.
So I can't leave VAT Liability with a credit balance. The long and the short of it is that the initial funds came from directors loans, so I'd be tempted to
Cr Directors Loans
Dr VAT Liability
As my first transaction. Then VAT liability ends up with a 0 balance after the VAT payment comes in.
Everything seems fine until you want to put the VAT to DLA, on the end there. Why are you doing this? Are you saying the VAT refund related to a different company, but got paid into this one? Because it sounded like you said they registered this company for VAT. So the VAT they have reclaimed should be related to this company's purchases? And so, whats needed is for these purchases to come into Sage, by you processing the supplier invoices, or a journal that amounts to the same.
You mentioned the bank account was NIL and that the VAT refund was the first transaction? Therefore these purchases were either made on account, or more likely, out of the directors pocket.
From what you have said above, I would be posting the VAT refund into the bank via the VAT liability account, and I'd leave it there, while I investigated.
Ask for the VAT return and supporting calculations that this refund relates to
Ask for the invoices.
Determine whether the claims are legitimate (and for this company)
Find out who paid for what (so as to keep a proper creditor tally for each director)
Decide how your findings need to be presented in Sage
If this is the first year of account, and the purchases are legitimate expenses for this company, they will need to be in Sage to form part of the first year accounts. If you had the information before starting to process everything else, I would have said recreate the return by posting these supplier invoices first (and so creating a VAT return that matches) then pay of the suppliers with a dummy bank account, and then journal the balance of this dummy account to the directors accounts, as appropriate. That means everything is in Sage, broken down nicely.
But.. if you do not have this information to hand now, and you need to get on with today's bookkeeping, I would put the refund in as a CR to VAT Liability, and then when I had the information, I would use a journal to introduce the net purchases (DR), the VAT (DR, posted straight to VAT Liability) and then CR directors accounts. If you do this, keep the paperwork that support the journal somewhere safe.
As you say Michelle, all of those purchases belong to the company, not the directors and I think thats where the confusion is happening.
So, all of those purchases need to be put in the companies books in order to rebuild the VAT return that ended up with a claim for £1000 by the company.
Rowland,
The sequence reads right appart from what seems to be a belief that the purchases were made by the directors rather than the company. Those assets exist in the company so just imagine that every transaction after the directors introduce their money was within the company and it sorts itself out.
There is no VAT liability credit balance as the debit balance existed within the company as it is the company, not the self employed individuals that was VAT registered.
Again as Michelle says that last step in your post cannot exist, there is no credit balance. It has to be zero at the Cr VAT liability step.
Go back to the purchase invoices and put those into the system. If the purchases were made before incorporation they can still be brought in as though purchased on day one of trading. If there are no purchase invoices showing the VAT and such cannot be recreated then give HMRC their money back as your clients have no right to it.
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
