This is going to be one very long post so apologies in advance and I hope I explain it clearly. If anyone can help with ANY aspect of it, then please please PLEASE do so as I'm about to jack everything in over this one client.
I took over the VAT bookkeeping side of things for a sole trader retail client last year on their Jun/Jul/Aug 14 return as their previous bookkeeper was seriously ill (true story!). The VAT was completed on a cash basis and I then going forward completed his return on an accruals basis as it made financial sense for his business. That return was fine, and the next 3 months, and then we changed things with HMRC for his current quarter to be 4 months - Dec/Jan/Feb/March to tie in with his year end of 31 March 15.
I use QB online, and started inputting entries and uploading bank statements etc from 1st June 2014. There have since been some entries that relate to invoices from earlier months of the tax year, and even some before then (Jan/Feb/March 14) as the invoices have been paid very late and when previously the VAT would have been reclaimed on a cash basis, I'm putting through the bill as at the date of the invoice and matching with the later payment on the bank account in QB and the VAT that hasn't been reclaimed is going through as an exception in the current quarter. Still following me?! I'm happy with all of that!
Here's where the problems are and I would be so grateful of any help:
1. I have only just had his accounts back from him from his accountant (who he no longer wants to do his accounts as he'd prefer me to take over due to how thorough I am) for March 2014. These are on an accruals basis as expected, but some of the balances on the balance sheet that I would like to use as opening balances are incorrect from my calculations. It would appear the past accountant asked for a few balances from my client (who by the way doesn't understand anything to do with accounts) and the rest were half arsed interpretations. I have no way of checking with them as they are not very forthcoming. For some that I know are incorrect e.g. creditors figures, I have posted the correct opening balances and it has sent the other side to an Opening Equity account as quite rightly I haven't posted a journal with balancing figures. I'm never going to have balancing figures though as all I can do is make my own calculations. Is it OK to have a balance sat in an opening equity account? Surely it will always be there and will continue to be carried forward? I can't just ignore all opening balances and start a fresh as you would with a new client as he did have amounts owing with people e.g. HMRC and creditors. Can anyone help me with this??
2. I started inputting transactions from 1st June 14, but I need to provide him with accounts from 1st April 2014. Anything I input in QB that apply to those 2 months in between will affect my current VAT return as exceptions and also change the sales / purchase figures on the VAT return. He has already paid the VAT on these entries so I can't post them this way. HOW can I add the net of the VAT entries to the expense accounts which will then need to match to the entries on the bank and credit card statement that I have uploaded to QB where there is a difference being the VAT? e.g. a £120 entry on the bank statement which relates to an invoice for £100 plus VAT. If I post the expense of £100 what do I do with the other £20 as I don't want it to hit the VAT liability control account as it has already been dealt with and reclaimed. I simply want to input the historical data.
3. I have invoices relating to previous years and VAT quarters that have never been reclaimed in full as my client, as mentioned before, is a late payer. No need for the warning with paying me as he has paid up front for everything!! I have worked out the differences that I need to reclaim on these invoices (total invoices less the cash amounts paid on them, then calculate the VAT element of the balance) but how do I adjust the VAT return for this? I can see when the VAT return is calculated that I can make an adjustment on the net amount payable to HMRC but it then asks me to assign the other side of the transaction to an account - what account?! Suggestions so far that I've had say to create a VAT adjustment expense and income account but I cannot understand this as surely it's not an expense, and it's not additional income?
It may appear that I'm in over my head with some of this, but his bookkeeping is so straight forward going on! The problem is carrying on from last years slightly incorrect accounts (which I have made my client aware of), making the adjustments for the cash to accrual VAT reporting and making it all balance and ensuring the balance sheets are correct going forward.
I can't tell you how much this is stressing me out at the moment and with a brand new baby I've been in tears with it as I can't seem to get my head around it.
Thanks so much in advance to anyone who can help me.
Do you really need to change the VAT to an accruals basis as it is just making a lot of extra work for yourself. Changing from a cash to accruals basis is a pain, unless the clients books are nice and tidy with few transactions (not likely!).
I can't say that I have ever seen a client's records which would be more financially advantageous to be prepared on an accruals basis. If it is financially advantageous to be on an accruals basis, it is most likely to only be for a short period.
The client sounds like a bit of a mess, so I would make it easy for yourself and stick to the cash basis.
In respect of the opening balances did you write to the old accountant and ask for a TB at the last balance sheet date?
Apologies, if I missed something in your post, I must admit I only skimmed some of it!
