I have a question regarding bank payments for invoices in previous months. My understanding is that payments should be recorded using the actual payment date in the bank and not the date of the invoice, otherwise the bank account balance on the bank statement for that month will not match the bank account balance on the balance sheet. However, my bookkeeper has used payment dates for payments that were actually in the following month. Is she correct? Is there a recognised practice for this?
He's an example:
20 Nov- Invoice Received for £100
20 Nov - Recorded Payment of Invoice £100 (but was actually paid 20th Dec)
21 Nov - Recorded Payment of Bank Fees, relating to Nov £10 (but actually debited from account 30 Dec)
The above would show an account balance on the balance sheet of £-110 but the actual balance on the statement would be £0 for end of Nov.
I would agree with you, and I certainly wouldn't post it as per the example. How would you reconcile the bank?
Supposing November was the year end, the balance sheet should show creditors £100 and balance at bank nil. Using the example shown you would have balance at bank £100 and creditors nil, which would be wrong.
An accountant may accrue the bank charges back to November afterwards but the bookkeeping entry should show 30th Dec as the date the charges were applied
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
I agree with John and yourself. The payment should only be allocated to an invoice once that payment had been made. Otherwise how would you know what was still outstanding for payment, and how would you know whether it had actually been paid or not?
... payments should be recorded using the actual payment date in the bank and not the date of the invoice, otherwise the bank account balance on the bank statement for that month will not match the bank account balance on the balance sheet.
Hi Blowfish,
I'd be inclined to re-phrase the first part of your statement as "payments should be recorded using the actual payment date and not the date of the invoice". I'm really thinking about cheques here. Cheques written should always be recorded on the date of issue - the payment date. For most other forms of payment (Standing Order, Direct Debit, FPS, BACS, CHAPS etc) the date of issue is usually the same as the date it appears on the bank statement. That brings me to comment on the second part of your statement: it is to be expected that the balance on the bank statement will not match the balance on the bank nominal in the accounting records. The bank reconciliation shows why this is so taking account of the different dates used for the same item on the bank statement and in the accounting records (e.g. outstanding cheques).
Could it be that a cheque was raised on 20th November to pay the invoice (coincidentally, of the same date) but it only cleared to the bank statement on 20th December? If so, the bookkeeper is OK.
On the fees front, there may have been an advance notification of fees issued by the bank which the bookkeeper has recorded on the date of issue. Again, the bank reconciliation keeps everything "in view" and the accounting entries for bank fees are in the correct month without the need for accrual adjustments.
Kind regards,
-- Edited by Onion4Sage on Monday 11th of January 2016 05:20:36 PM
We don't use cheques at all. All payments are made by bank transfer so are recorded in the bank statement instantly...so we don't have the issue with delays between issuing payments and seeing them on a bank statement. Therefore, I would expect the bank balance to tie up with the balance sheet if payments are recorded when actually paid.
The bookkeeper is also my accountant and refuses to change the way they do this and assures me that its standard bookkeeping practice. I appreciate that there could be a number of ways to record payments which comply with bookkeeping best practice, and we will all have our own preference. But am I getting bad advice from the bookkeeper? are they actually doing this wrong? My concern is that if their approach is non-standard it will make it harder for me to use a new bookkeeper/accountant?
Do you happen to know what they're using to keep your records?
This is not standard practice. I suspect it's more a case of 'cheap practice' - I'm thinking that maybe they're doing this because they're only using a simple system (a very simple spreadsheet-based cashbook, for example), and have no easy way to maintain proper records. Hence my question.
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
The invoice received on 20th November may have settlement terms of 30 days and so the bookkeeper records the invoice and immediately orders a payment to be made on 20th December via electronic banking. Because they committed to the December payment on the 20th November they've recorded that date on the payment transaction in the accounting records and the transaction would show as an outstanding payment on the bank reconciliation for 30 days.
There are others with a much stronger background in banking / banking law than I on this site, but I'd be inclined to think that this transaction, although ordered on 20th November, should be recorded as a 20th December payment. Like a post dated cheque, the instruction to pay does not become actionable by the bank until the date given on the instruction to pay which, in this case, is 20th December.
They had Dec and Nov's account data and decided to record Dec's data in Sage before finalising the Nov's end of year accounts. During the Dec's recording of data they recorded a Nov date for some of the Dec payments (reason being they were associated to either Fees or invoices in Nov). I just think the approach is wrong, but will be interesting to see how wrong it really is...
It's not down to the [lack of decent] software, then, and I'm not sure if what Ian suggests is what happened, either.
Question (to help clarify that point): Does this bookkeeper actually make payments for you, or do you do this yourself, and they simply record in Sage what you've done?
Edit - another (afterthought) question: Are you registered for VAT, and if so what VAT scheme are you on?
-- Edited by VinceH on Tuesday 12th of January 2016 10:10:49 AM
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
Sounds like recording bank payments in the wrong month rather than making appropriate accruals for charges not yet paid.
Edit - Sorry. I've just realised that doesn't make sense. The invoice already had the charge in November. The payment in November is just reducing creditors and reducing the bank balance. Not particularly material but we're talking general principles here. Hard to understand why they'd want to do this other than they forgot to change the date in Sage before processing the payment.
-- Edited by Onion4Sage on Tuesday 12th of January 2016 11:21:48 AM
Yes, we are registered for VAT (no special scheme) and use accrual accounting. The book keeper enters in all the data into Sage - I don't have access to it. I just provide the statements, sales receipts, invoices etc in a pack. The reason given for why the bookkeeper does this, is that its the way they were taught and they do this for all their clients.
Can I ask if the bookkeeper/accountant has an accountancy qualification? Four people have now said they think the method used is incorrect, so I'm interested to know how he was taught that.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
