Hi, Im new to the forum and this is my first post. I am ICB qualified and have just started my practice. Before this I had worked in PL/accounts jobs in limited companies.
Im pretty sure I am over thinking this but wanted to get a second opinion:
My client uses the cash basis method and has been going for a couple of years as a sole trader. I have just taken over and the books are being moved to a cloud software. Before no balance sheet has been kept but with the software it is useful to have the bank balance and use the reports so will need to produce some for the previous year. The obvious balances I am fine with but there is a remaining balance, which as the bank account was not always a business one, could it just be put to owners equity? Is this ok without going through all the bank statements and does it even matter, as a sole trader the money is not separate like it would be if this was a limited company?
Hi Katie or is it Kat? Welcome to the site. Can you please add your first name to the signature bar - via edit profile--> signature. Helps us get your name right if nothing else.
You will need to create a balance sheet. Oh isnt it great when folks (clients/other profs) dont do the full set of paperwork and you have to back track for a period before you can even get started! This classic 'mistake' is usually picked up when they want to apply for a mortgage or a loan and its usually urgent, or worse still when they want to incorporate the business! Worth checking with them if they have any other assets/liabs as well as cash!
Are there a lot of entries? Wondering if its do-able just to start again?
Covering this off properly I would suggest you should be looking to split out the capital introduced and any drawings.
Out of interest how were you planning to get to the correct bank balance to dump to the 'equity' account?
edited to correct typos
-- Edited by Cheshire on Monday 15th of May 2017 01:22:10 PM
__________________
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
Thanks for your response. I have have updated my name now oops!
I am used to accruals and balance sheets and i know the cash basis is meant to be easier but i find it strange. There aren't any assets/liabilities apart from the bank (although not all of this is business cash). I have this year's bank statements so have a starting bank balance for this year, previous tax returns so i have the profit and a spreadsheet from last year which has drawings although this was not connected to the bank balance in any way. I did think about trying to start from the beginning but it will be a few years worth of transactions. I had split out the retained profit and known drawings, so the balance left would be the clients money (a mix of old personal money and any capital introduced)? I asked about capital but was told there was no money moved intentionally into the account for the business. If there is personal money that doesn't have anything to do with the business for a sole trader should this be categorised differently? I can see why setting up a business account from the start is a good idea!
Thanks Katie
The drawings not been connected to the bank make me think there is perhaps an element of cash takings as well as withdrawals.
Can you advise what type of business this one is in?
Sounds like you don't have capital introduced so it's all via his drawings account.
I would tell him you strongly suggest a separate account, warn him of the pitfalls (and potential fines etc for not keeping complete records as necessary) and see what happens.If he has an otherwise strong base for record keeping you may be happy to go with it, but if he has cash flying about and no record keeping, then consider getting rid. Such clients are not worth it for when it bounces back on a HMRC inspection.
__________________
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
