Problems in trial balance (cash basis) - The Book-keepers Forum (UK)

terry3218 · Member

Problems in trial balance (cash basis)

Shamus · Forum Moderator & Expert

Hi Terry,

welcome to the forum.

Surely your Cash and bank balances do not include the flip side of the transactions with the imprest system which is where your imbalance is coming from if you attempt to remove the petty cash?

The above sentence assumes that your imprest petty cash system exists outside your normal cash receipts and payments. (The fact that removal throws the balance out would suggest to me that what you asssume includes the petty cash actually doesn't).

In VT I keep Petty Cash and Cash as seperate pseudo bank accounts.

I am not saying that this is the correct answer as clients never fail to surprise me with the ingenious ways they manage to mess up their books but you should at least check this out before discarding it. To do that trace a transaction from transfer into the imprest system. Is their any way that the amount in the petty cash account is also in the Cash account? No accounting software would (should) allow that but if the books are just in a spreadsheet then anything is possible.

You need to add some details about yourself to your first post. Nothing major like last names or business names but just enought that we know that level that we need to pitch our answers as we have all levels on here from trainee bookkeepers through to chartered accountants. I would not phrase an answer the same to a newly qualified member of the ICB as I would to (say) an MAAT or PQ.

Just give us you first name, the body that you are a member of and whether you are fully qualified or a trainee and the site will try to gear responses accordingly.

Hope that helps,

Shaun.

Cheshire · Master Book-keeper

Hi Terry
Welcome to the forum. be good to know some background about you, as Shaun says, it helps with answers.

terry3218 · Member

@ Shamus thanks for the response. I understand this is a UK forum, but I am not from UK. I am a trainee accountant at the moment and I am an ACCA affiliate member. I am kind of a novice when it comes to real world financial statements.

Now back to the questions, the cash balance being reported includes the respective opening balance plus additions minus deletions. And there are two petty cash balances being reported in the trial balance, one is petty cash withdrawals and the other is petty cash paid ( to incur expenses, this is done via withdrawing amount from the bank). Yes, the additions and deletions of petty cash is included in the cash and bank closing balances. I was only provided a rough accounts register (in hard copy) and then I entered all that data into an excel sheet.

Regards

abacus12345 · Guru

Hi. Where you have acquired your source documents, can you not ask for what ever is remaining? The two petty cash accounts, in and out, can you not work this into one account?

terry3218 · Member

@ abacus12345 these are all the documents they have. How can I work these two accounts into one? Will you kindly elaborate a little. Thanks

abacus12345 · Guru

If you've two accounts, one solely as an outflow, one as an inflow - create one t account and work them both in together to get a end debit balance for the trial balance?

terry3218 · Member

I have tried it, but if I do that trial balance does not balance anymore. I need to find a way to eliminate these accounts altogether since they are already included in the cash and bank balances being reported. Thanks for the response

abacus12345 · Guru

Ok, so effectively you have these figures twice in the trial balance?

terry3218 · Member

Yes, you see the petty cash paid portion is already reflected in the closing balance of the bank (since the bank balance reported is opening balance plus additions less deletions) and petty cash additions (withdrawals) is already included in the cash balance (in addition of cash)

abacus12345 · Guru

Has the petty cash imprest system been used here?

terry3218 · Member

there is no imprest system per se. The cash is withdrawn as petty cash as per the needs.

-- Edited by terry3218 on Sunday 3rd of April 2016 07:19:00 PM

abacus12345 · Guru

Effectively then imo, these have come straight from the cash account. I'd work all of the petty cash transactions into the cash account. Get rid of this petty cash account(s). Next time advise them how to use the system correctly. Others may disagree. If next time the imprest is used, it helps to track funds which are used to purchase items which go through a well functioning petty cash system. As I say this is what I would do.

terry3218 · Member

So sorry, but how do I work the petty cash transactions into the cash account?

Regards

Cheshire · Master Book-keeper

Is this a real case situation - ie a client? Or a training or practice exam question?

Sounds like some doubling up/wrong start balances to me, but its all getting a bit vague.

By the way - forum names are different to real names - the latter are included under the line on the posts (but cannot always be viewed if you are viewing the forum via a smartphone). Plus no need for '@' to be included. Please add your name, as Shaun requested, to your profile (go via edit profile) and yours will show on your posts as well.

terry3218 · Member

Yes, this is a real life situation. I have included the name

-- Edited by terry3218 on Sunday 3rd of April 2016 07:41:15 PM

Cheshire · Master Book-keeper

Can you see my name, Shaun and Johns under a line in our posts? That is where you can put your name through 'edit profile'

Cheshire · Master Book-keeper

So - is what kind of business is this? What is it exactly you are trying to get to for their benefit? Just wondering what it is about their ledger that does not provide the information that is required by totalling all relevant columns?

Or

For simplicity - why not have two T accounts - one cash and one Bank?

terry3218 · Member

Yes I can see the names and I have included my name by going to the edit profile section, I don't know why is it not showing. This is a small school and they don't really have any accountant; the accounts register is maintained by an office assistant who also deals with most of the office tasks. I do have a bank account as well. Its closing balance has been arrived by adding the receipts which is mainly fees, and subtracting the payments which are made directly through cheques/banking channel. And the cash closing balance has been arrived by adding the cash received (mainly petty cash withdrawn from bank) and subtracting the payments made in cash.

Shamus · Forum Moderator & Expert

I just fixed your signature for you Sammy.

From your explanation of the client it is too dangerous to take their word for them getting things right. You need to be able to see the underlying transactions.

I've been doing this a while and I am yet to come accross a single client whose bookkeeping I have not had to fix.

Can you go back to the client and demand all of the books upon which the information given to you was based?

What software is the client using to prepare their books?

Cheshire · Master Book-keeper

So have you included the credits to the Bank for the effective transfer of cash to the 'petty cash'? Where did you get the opening balances from?

You initially mentioned ''two accounts, namely petty cash paid and petty cash received'' - what are the balances on these and what is the difference on your TB?

Are there lots of entries? Might be worth posting what you have done, but not if there are lots of entries someone has to wade through! Failing that I think an extract from the start of the ledger with perhaps an example of exactly what entries you are making.

Are you any good with descriptions using 'debit' and 'credit'? Might be easier for folk here.

Dare I ask - what about unpaid invoices for fees and suppliers. We use the accrual system in the UK. No idea what regulations you need to follow, where you are, but thats something the ACCA certainly would teach and that doesnt seem to being covered in your workings for the school. Which is why I thought it might be an extract from a course you were taking.

Cheshire · Master Book-keeper

Shamus wrote:
I just fixed your signature for you Sammy. Thanks. So its not Terry then. Welcome to the forum Sammy!

From your explanation of the client it is too dangerous to take their word for them getting things right. You need to be able to see the underlying transactions. Agree totally and meant to add it to my post which crossed with yours and then was sidetracked!!

I've been doing this a while and I am yet to come across a single client whose bookkeeping I have not had to fix. lol. Me too!!!!!!!!!

Can you go back to the client and demand all of the books upon which the information given to you was based?

What software is the client using to prepare their books? Its just a big book by the sounds of it - Ive alluded to the 'missing' pieces of the jigsaw in my response.

terry3218 · Member

Shamus wrote:
I just fixed your signature for you Sammy.

From your explanation of the client it is too dangerous to take their word for them getting things right. You need to be able to see the underlying transactions.

I've been doing this a while and I am yet to come accross a single client whose bookkeeping I have not had to fix.

Can you go back to the client and demand all of the books upon which the information given to you was based?

What software is the client using to prepare their books?

Client does not have any qualified accountant; in fact, the person who keeps the book is also not very educated. They don't use any software, they maintain their books on a manual register. One thing though, I can compare each individual entry to the bank statements, do you think that can help in some way?

Shamus · Forum Moderator & Expert

Hi Jo,

yes, ACCA cover it in depth at paper F3 (1.1. under the old syllabus).

Hi Sammy,

which country are you in and do you use local GAAP or IFRS? Doesn't matter for the question but I'm just inquisitive.

Shamus · Forum Moderator & Expert

Hi Sammy,

from the sound of things this doesn't sound like a big job. I would scrap the balances from the client and redo everything into your software using the bank statements, invoices and receipts.

I would then teach the client how to use a cashbook so that you are not faced with the same issues next year.

Sometimes one has to look at the first year with a new client as a loss leader.

terry3218 · Member

Shaun, I am in Pakistan. I am well aware of all the accounting concepts, but here in this school, they follow just the receipts and payment basis. There are no accruals as the person managing the books does not have any accounting knowledge as I said. Normally over here, we do follow IAS and local GAAP.

Update: Shaun, I too did that. I scrapped their ledger (more like an attempt to make a ledger), and entered all the data from scratch from their receipt and payment register. Doing so directly form the invoices will be too much time consuming.

-- Edited by terry3218 on Sunday 3rd of April 2016 08:14:47 PM

Cheshire · Master Book-keeper

terry3218 wrote:
Client does not have any qualified accountant; in fact, the person who keeps the book is also not very educated. They don't use any software, they maintain their books on a manual register. One thing though, I can compare each individual entry to the bank statements, do you think that can help in some way?

You need copies of all cheques, paying in slips, bank statements, invoices issued to students/anyone else, plus invoices issued to the school, plus copies of receipts for ALL the spend, even petty cash items. All known as source documents.

Cheshire · Master Book-keeper

terry3218 wrote:
I am well aware of all the accounting concepts, but here in this school, they follow just the receipts and payment basis. There are no accruals as the person managing the books does not have any accounting knowledge as I said.

Sorry Sammy, but I think we all got the impression that you were all new to this as you werent using the debit/credit descriptions and given your struggles with what seems like double counting. Plus - even if they do not do accruals, they can up to a point continue with this big ledger if they have no other knowledge, but then the accruals - that is a job for you I would suggest, which having those source docs can then help you to sort the complete picture, rather than just looking at the cash/Bank side. Or perhaps they need some help from a trained person more often or installation of a simple piece of software for the future that can help them, assuming the cost of either of those is not prohibitive.

Shamus · Forum Moderator & Expert

Hi Jo,

snap.

Think that we've both come to the conclusion that Sammy needs to scrap the stuff that he has and do it properly from scratch.

... How many times have we both had to do that!

terry3218 · Member

Cheshire wrote:
So have you included the credits to the Bank for the effective transfer of cash to the 'petty cash'? Where did you get the opening balances from?

You initially mentioned ''two accounts, namely petty cash paid and petty cash received'' - what are the balances on these and what is the difference on your TB?

Are there lots of entries? Might be worth posting what you have done, but not if there are lots of entries someone has to wade through! Failing that I think an extract from the start of the ledger with perhaps an example of exactly what entries you are making.

Are you any good with descriptions using 'debit' and 'credit'? Might be easier for folk here.

Dare I ask - what about unpaid invoices for fees and suppliers. We use the accrual system in the UK. No idea what regulations you need to follow, where you are, but thats something the ACCA certainly would teach and that doesnt seem to being covered in your workings for the school. Which is why I thought it might be an extract from a course you were taking.

When cash is withdrawn from the bank for petty cash, I have recorded it as a credit to the bank. And that same amount is debited in the cash.

Cheshire · Master Book-keeper

Shamus wrote:
Hi Jo,

snap.

Think that we've both come to the conclusion that Sammy needs to scrap the stuff that he has and do it properly from scratch.

... How many times have we both had to do that!

Ive lost count Shaun!!!!

terry3218 · Member

ok then so I guess, tomorrow I will compare all of the receipts and payments with bank statements from the scratch and then lets hope it leads to somewhere

Cheshire · Master Book-keeper

terry3218 wrote:
Cheshire wrote:
So have you included the credits to the Bank for the effective transfer of cash to the 'petty cash'? Where did you get the opening balances from?

You initially mentioned ''two accounts, namely petty cash paid and petty cash received'' - what are the balances on these and what is the difference on your TB?

Are there lots of entries? Might be worth posting what you have done, but not if there are lots of entries someone has to wade through! Failing that I think an extract from the start of the ledger with perhaps an example of exactly what entries you are making.

Are you any good with descriptions using 'debit' and 'credit'? Might be easier for folk here.

Dare I ask - what about unpaid invoices for fees and suppliers. We use the accrual system in the UK. No idea what regulations you need to follow, where you are, but thats something the ACCA certainly would teach and that doesnt seem to being covered in your workings for the school. Which is why I thought it might be an extract from a course you were taking.
When cash is withdrawn from the bank for petty cash, I have recorded it as a credit to the bank. And that same amount is debited in the cash.

OK. So what entries are going through the other accounts - ie petty cash paid and petty cash received and are the balances between these not your Tb difference?

Cheshire · Master Book-keeper

You didnt say where you got your opening balances from?
Did you have an opening TB?

Cos its possibly double counting re the petty cash paid/received, compensating entry or some such, or the incorrect start point.

-- Edited by Cheshire on Sunday 3rd of April 2016 09:47:25 PM

terry3218 · Member

Cheshire wrote:
terry3218 wrote:
Cheshire wrote:
So have you included the credits to the Bank for the effective transfer of cash to the 'petty cash'? Where did you get the opening balances from?

You initially mentioned ''two accounts, namely petty cash paid and petty cash received'' - what are the balances on these and what is the difference on your TB?

Are there lots of entries? Might be worth posting what you have done, but not if there are lots of entries someone has to wade through! Failing that I think an extract from the start of the ledger with perhaps an example of exactly what entries you are making.

Are you any good with descriptions using 'debit' and 'credit'? Might be easier for folk here.

Dare I ask - what about unpaid invoices for fees and suppliers. We use the accrual system in the UK. No idea what regulations you need to follow, where you are, but thats something the ACCA certainly would teach and that doesnt seem to being covered in your workings for the school. Which is why I thought it might be an extract from a course you were taking.
When cash is withdrawn from the bank for petty cash, I have recorded it as a credit to the bank. And that same amount is debited in the cash.
OK. So what entries are going through the other accounts - ie petty cash paid and petty cash received and are the balances between these not your Tb difference?

OK the way they do it is just either a payment or a receipt. Other entries are mainly expenses like utility bills and income which is mainly fees received from students. So all in all there are just expense accounts, income accounts, and cash and bank accounts. The difference between the accounts of petty cash paid and withdrawn is Rs.60,000 approximately. The trial balance is currently balanced, but if I remove these two accounts it is unbalanced by Rs. 60,000 approximately

Update: This is the first time they are preparing their accounts and the school started recently so there were no opening balances.

-- Edited by terry3218 on Sunday 3rd of April 2016 08:27:44 PM

-- Edited by terry3218 on Sunday 3rd of April 2016 08:28:53 PM

Shamus · Forum Moderator & Expert

terry3218 wrote:
ok then so I guess, tomorrow I will compare all of the receipts and payments with bank statements from the scratch and then lets hope it leads to somewhere

It will, and it will balance, but it will not be the same as what the client gave you.

It will also take a lot longer to do this properly than the client has perhaps budgeted for.

As the client is hiring cheap labour to keep the books then they are going to have to look at paying twice as much for things to be done properly than if they had hired a competent bookkeeper in the first place.