I have a client who cannot seem to keep a record of when an invoice is paid, whether it is in cash or by cheque. pays random amounts in to the bank, not knowing what invoices it pays. I may not get an invoice for some amounts banked. what is the best way to do this, if I cant match the sales invoices with what is banked. I have tried getting this client to record properly but to no avail. This year will be his final warning if he doesn't make things easier, but I need to finish this year accounts first. Any suggestions.
Hi
I had a nightmare client like this although I was very lucky in that the amounts he invoiced/paid in where very large in nature and also odd amounts so generally I was able to match them - eventually. I usedto go to my clients premises and have a good route for paperwork - would never just take what he gave me - that unearthered loads, but it was totally frustrating. Tell him you cannot possibly complete his year end unless he gives you all the info you need. Try to pin him down to a time when you can go and review the list together perhaps. Mentioned you cannot keep his tax and VAT bills down if you dont have everything and that in the event of an inspection he could be fined. Maybe send statements out to his clients - those that have paid will soon come back with a response!
Either that or run for the hills.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
I put everything through petty cash. Anything that they cannot account for goes to drawings and I've told them point blank that credit control is completely down to them. (not my problem if they don't get paid, just make sure that I do).
Worst part about mine was that he offered to help one of my other clients out with their paperwork!!!! You could both probably hear the distant screamed "NOOOOOOoooooooo" when I found out about that offer!
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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.
thank you for your relies, glad I am not the only one who attracts these. Shamus, so if you cant match an invoice you enter the invoice as a cash receipt and then any cash that is paid in the bank, you would then do a transfer to bank account??
If you knew you had ALL the sales invoices, you could post them all as paid via cash and then just do cash to bank transfers. But, if you are saying you don't get all the sales invoices, that complicates things.
But, that's his issue! He answers to HMRC if they investigate. You need to explain that if he doesn't provide an invoice for all his sales, you have no idea if any are missing. If he uses invoices numbers or a receipt book, that can at least alert you to anything that might be missing.
To get you through this current year, I would post all the invoices into a computer package, clear of what I could match to the bank. Clear the rest using cash. Then do cash to bank transfers for any bank deposits that you couldn't match.
After that you can review the cash balance and maybe the gross profit margin and take a view on whether it looks in order, or looks whacky. If things don't look right, does he have an appointment book, where you could both tie the sales up? Sit with him and review the sales invoices, and ask him if any are missing. He might know in his own head.
I don't see what else you can do, but remember to do an accountant report which states that you have prepared the accounts based on information and explanations provided by him. You can only work with the information you receive.
Hope that makes sense!!
Just to add - if you find the cash is overdrawn at the end of the errand, you could adjust sales to clear it to NIL. If there is a balance, no doubt that would go to drawings.
-- Edited by FoxAccountancyServices on Sunday 13th of September 2015 10:05:43 AM
just to clarify, if they did not provide me with all of the invoices and all of the bank statements then those two are the deal breakers where I would not work with them. Other elements of the clients shoddy record keeping may lead to them paying too much tax but I would never allow a situation where they pay too little or where I was not able to evidence the income (or outgoings allowed as expenses).
Bulk deposits which include payments, part payments and withholdings for expenses reimbursement without adequate associated paperwork are the bane of my life with this client, but, its one of those where they have a great business and really try hard with the paperwork. Sometimes too hard as they keep "simplifying" their process (normally accumpanied by my palm hitting my face!).
However, because they do genuinely try so hard to get it right dumping them would feel a bit like kicking an enthusiastic puppy.
They're just one of those clients where you figure that your main role in life is to protect them from themselves.... Sometimes it really feels as though parenthood prepared me more for this job than my qualifications!
Silly Digits,
When using this method everything is transferred to petty cash except genuine bank payments except for genuine bank transactions (i.e. website standing order). The year end balance of the bank account is transferred back. Everything else is processed through petty cash as if everything was transacted in cash with any balance not transferred back to the bank because it could not be reconciled being drawings.
For debtors always get evidence in writing from the client of the invoices that they state have not been paid as at the period end.
The aim is of course that despite the lack of commitment to their paperwork by the client to create a set of books where every penny can be evidenced even though the exact movements cannot be traced back to exact invoices or receipts.
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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.
Sorry Shaun, my reply was for Silly Digits. They haven't mentioned missing bank statements, only missing sales invoices and a struggle with matching up bank deposits. Indeed it may be best not to act at all, but Silly appears to want to, at least, finalise the accounts they have committed to. If all the bank statements are present, then one can be sure of those transactions. Silly can only account for the sales invoices that have been given. And if sales are understated, and an investigation ensues, the client will be responsible for proving that the sales figure was correct. When he signs the accounts, he confirms he has provided all information and explanations.
All sales invoices could be considered as cash income, and then bank transfers made for all bank deposits, I would just prefer to allocate bank receipts to those invoices I could match, first. That would give me a way to take a view on deposits I couldn't match - for instance, if a large amount of cash is banked, but all invoices prior to that date have been cleared, that might suggest a missed invoice. Or, if more cash is banked say in the first month, than has been invoiced, that again might suggest a missing invoice. Process of elimination and all that - hard to say without actually working on the records.
If cash is overdrawn, it would be prudent to write this off as extra sales. If cash is left, it could be kept on hand (assuming that it might includes some debtor amounts) or written off to drawings.
I think that you are adding more flexibility in your cash method than I do.
With mine,
Petty cash has to come out as either zero or the contents of a petty cash tin. It cannot be overdrawn.
Bank has to come out as what it says on the final statement (which could be overdrawn).
Any debtor figure must be matched to written confirmation from the client that the amounts remain outstanding at the period end.
The balance between the petty cash balance and zero are what is transferred to drawings.
If I had a situation where I was looking at needing to include extra sales revenue then I would be going back to the client needing confirmation that all invoices had been supplied.
Similarly if I had floating amounts then I must have done something wrong as everything has to tie up to the penny (even though the client will end up with more recognised as drawings than they have probably actually taken... Their fault, not mine).
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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 think that you are adding more flexibility in your cash method than I do.
With mine,
Petty cash has to come out as either zero or the contents of a petty cash tin. It cannot be overdrawn.
If the cash is "notionally" overdrawn after Silly has posted everything, that suggests either missed sales income or expenses being paid out of the clients own pocket. Given the current situation being explained, its unlikely that client will be able to pinpoint where he paid for items himself, and in the event of an overdrawn cash balance, to bring it to NIL, then its prudent to adjust sales - DR cash, CR sales. If the client is taxed on a higher sales figure because of that adjustment, that's his own fault for not providing decent information.
Sales invoices paid via cash (as far as Silly can assume) = £1000
CTB = 1200
That would give an overdrawn cash account, and would suggest £200 sales were missing.
If the client is paying cash for materials, and taking cash drawings as well, that would increase the overdrawn cash, and require a higher journal to sales. All Silly can do is ask the client for an estimate of drawings.
Bank has to come out as what it says on the final statement (which could be overdrawn).
Yes, and that will, in part, involve reconciling what bank deposits can be matched to individual invoices, and then posting any further deposits as cash to bank.
Any debtor figure must be matched to written confirmation from the client that the amounts remain outstanding at the period end.
If that's possible yes, but it might not be. Silly can look at what was banked in the month following the year end, and take a view about whether to leave something in cash, to account for that. Cash is very often attributed to "on the day" jobs - I am assuming this is a labourer of some sort, and may possibly be paid pretty quickly. Either way, a debtor or cash balance gives a asset on the balance sheet, its really for Silly to look at what he/she has to work with, once all is processed, and adjust as he/she sees fit, after talking with the client.
As you say, cash cant be left overdrawn, so Silly has to adjust some way. In the event there is no information on debtors, or information on cash introduced, I would balance cash to NIL through sales, after putting through an estimate cash drawings figure. Again, the client will be fully prepped for what's happened - best done face to face, if possible, with a follow up letter explaining what has been discussed (to cover one's ass!)
The balance between the petty cash balance and zero are what is transferred to drawings.
Yes assuming there is a debit balance on cash after Silly has posted everything - but the post suggests its very probable that wont be the case, as she is seeing cash being banked for which there are probably missing invoices. If there is no invoice and no cash banked, Silly has no way of knowing about that, and that is for the client to prove to HMRC, in the event of an investigation.
If I had a situation where I was looking at needing to include extra sales revenue then I would be going back to the client needing confirmation that all invoices had been supplied.
Silly will need to chat with the client when the drafts are ready, and explain what they have done and why they have done it. The client will then have the opportunity to give further information to change this.
Silly is clearly having issue getting information and so in the event it still doesn't materialise, there's not much else that can be done.
Similarly if I had floating amounts then I must have done something wrong as everything has to tie up to the penny (even though the client will end up with more recognised as drawings than they have probably actually taken... Their fault, not mine).
The only thing Silly can reconcile to, in the event of no further information, is a NIL cash balance. When preparing accounts from incomplete records, it's often the case that cash doesn't tie up - what do you do? Sit on it, and make the return late, knowing the client will never be able to explain? Send the client to someone else, who will probably do exactly what I am explaining above... or do the best that can be done, and make sure HMRC has something, rather than nothing? Its not ideal, but that's the way it goes sometimes, unfortunately. As long as Silly has been prudent, keeps good notes, and puts as much as possible in writing with the client, a bad outcome on an investigation will fall squarely on the client.
