How can we reverse the accrued expense for the previous year if we actually haven't received any bill or invoice. There are actually not real expenses. What's the proper way to reverse it?
The key is always in thinking about what you are attempting to do.
You don't say what the accrued expense is so I cannot make it specific. Also you say that its not a real expense? Are we talking use of home? The answer could be different depending on the reality of the underlying original transaction (i.e. should it actually be an accrual at all?).
Please post more details of the type of expense that was accrued. Also state whether this is for self employment or an incorporated entity.
The lack of required information in the posts will be the reason that you have not received a reply
Either myself or someone else will talk you through the principle of whats happening / needs to happen once you have posted more detail.
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 in process of doing year end reconciliation and trying to understand how is possible someone to leave so many transactions unreconciled from 2 years ago.
All expenses were accrued based on the settlements that probably have never been sent to the performers and we are not going to receive an invoice at all.
Or it is just a case of bad bookkeeping for the period we didn't do the company's accounts.
I thought it could be an interesting issue for discussion in general and it would be helpful for everyone posting in this forum.
Let say you decided to accrue an electricity expense (a business expense), but later discovered you never used the electricity and no bill was sent to you. How are you going to reverse it? And, is your adjustment going to affect the current year or the previous one?
Are you sure that this is the fault of the ex bookkeeper and not the business owner?
Where did the previous bookkeeper get their figures from if there was no invoice?
In the case of an electricity bill I would put through an accrual from the actual bill when it arrives as such will arrive (whether monthly or quarterly or even half yearly) substantially before the accounts are due for filing.
This scenario is basically using provisioning (by putting a provision through as an accrual) without specifically using provisions to reduce profit by the back door (Cr Accurals / Dr Expense).
Even though you have no invoice for the expense is there complimentary evidence that the money was taken from the business bank account to pay these expenses?
If so then the accrual becomes real (Dr Accrual / Cr Bank).
If not then the accrual should be reversed (use a journal to Dr Accruals / Cr Expense account).
The added complication that you have then is that Profit will have been overstated by the overstated expense which will have resulted in a miscalculation of the tax liability.
If the amount is negligible then such would normally be adjusted out in the current period but a more substantial issue would require a prior year adjustment.
Remember to ALWAYS be wary of clients attempting to blame previous bookkeepers (#1) .... For what reason did the previous bookkeeper leave? Have you been allowed to speak with them about the client?... Remember that manipulation of accruals accounting to reduce profits is tax evasion!
Assuming that you are only doing the books rather than the accounts speak with the accountant about this but prepare quantification of the total amounts involved after you have confirmed from the bank statements that such have not actually been paid simply without an associated invoices.
I suspect that the accountant will advise a current period adjustment.
kind regards,
Shaun.
#1 ever notice how its absolutely always the previous bookkeepers / accountants fault... Try to avoid falling into the trap of advocacy until you can substantiate for yourself the clients claims.
__________________
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.
