I've taken on my first client (a sole-trade carpenter) this week who wants a profit & loss done for the year in order to do a self assessment.
He is not VAT registered.
My questions is this:
I've input all of the year's sales/purchase invoice and also invoices 1 month eitherside of the financial year. The bank statement shows receipts and purchases to suppliers and customers which exceed the total values of the purchase and sales ledger control accounts.
Can I recognise these receipts and payments as purchases & sales on the dates of the transaction, or will i need to get store receipts/invoices of the date when the credit sale/purchase took place? (ie. use the tax point as opposed to the transaction date)
If invoices/proof of date on the credit sale/purchase IS needed, and I can't obtain the proof, can someone confirm if a post entry to drawings/capital will suffice instead?
If you need more info to answer, please let me know.
Thanks in advance
Andy
-- Edited by Dev86 on Saturday 21st of June 2014 11:41:33 PM
I feel that you didn't get an answer sooner as the question seems a little confused. However, hope that the following in relation to missing documentation helps you formulate a strategy for handling this client.
putting transactions in the wrong period is a form of earnings management often used for profit smoothing.
You will on occassion find clients conveniently "losing" documentation around year end specifically for the purpose of attempting to reduce their tax liability.
Their incorrect assumption is that lack of evidence works in their favour where the reality is that we are trying to gather the evidence in order to protect them (generally from themselves).
If possible get the receipts to ensure that the transactions are recorded in the correct period.
If not, then how good is the evidence in the bank statement? Does it actually say what was purchased? Can you see the definite commercial reasoning behind the transaction without the underlying documentation.
I have a saying that I use often with clients that "if there's no documentation then it never happened".
If the client is absolutely adamant that it did, you have alternate evidence (in this case the bank statement) and they will not accept it ending up moved to their DLA/ drawings then I emphasise that their accounts state that such are prepared on the basis of the information supplied to us and that the business owner actually bares the full resonsibility of their preparation (no matter how many times you tell them, it always seems to come as a surprise to clients that the accounts are their responsibility, not the accountants (our responsibility is professional competence and due care in preparing the accounts from the information provided to us)).
I then detail any transactions in issue in an email which the client must return to me stating that they accept responsibility for the inclusion of those transactions of those transactions with sub optimal documentation in the accounts.
Giving that option to clients though has to be the exception for quite specific circumstances with alternate evidence rather than the rule otherwise they would quickly lose interest in keeping proper records assuming that they could just sign something to say that they were responsible for it.
Its always a good mantra to work by in this business that our main role is in attempting to protect our clients from themselves.
And trust me, at times that really is an uphill battle!
kind regards,
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.
Surely it works against the client's interests if there are undocumented receipts and payments. My inclination would be to treat all undocumented receipts as sales, if I can't find evidence for them being something else, but treat dubious purchases as drawings. So his profit may be overstated, but he's less likely to be clobbered for underpaying tax.
With income rather than outgoings, where the emphasis is on the client rather than a third party to provide evidence, why would a client ever not be able to document a sale?
To treat income without invoice as a sale could overstate sales would be useful for a client if they were attempting to overstate income to secure financing.
Conversely to not treat as a sale when one has occured would understate turnover and hence profit and as a result tax.
So which is worse? defrauding the providers of finance or defrauding the Government?
Lack of receipts (which was the thrust of my above reply) is one thing but lack of invoices is quite different and if a client was that messed up that they didn't know what they had sold then I would let them go rather than take it on myself to take a guess at the truth hidden behind their books and records.
The relationship with a client has to be a two way thing where we try our best to help them but they still need to provide us with sufficient data for that task.
__________________
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.
