Opening Balances

Opening Balances

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Hi 

Hopefully you can help me, as this is doing my head in! I work for a company, or rather a bunch of companys run by a variation of the same directors.

Company A went into liquidation due to amounting unpayable debts. Company B has now started trading in the same premises and is basically continuing the operations. Due to the directors not wanting smaller companies they owed money to to go bust, and also so the new company could continue trading, they have carried forward a substantial amount of debt from the old company and are paying it from the new company.

My question is how do I show these carried forward figures correctly? 

I was going to post all the outstanding invoices as one O/B on each Supplier Account dated to last year, obviously as it's a new company I can't post the TB of the old company as the opening balance of the new company.

So I was just going to date everything 30/9/11

CR Creditors Control Acct/ Supplier Account

DR correct nominal e.g Bar Purchases/Stationery etc

Would this be the right way of doing it, or should I still code it all to 9998?

Thanks

Replies (12)

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Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
28th Oct 2011 16:24

Tricky one.

Company B is new. You have no opening balances.

If Company B is paying Company A's debts, there are a few things to look at.

1. Is Company B taking liability for Company A's debts - they should be careful they don't set a precedent whereby they could be responsible for all of Company A's debts. Tread carefully.

2. If they are paying invoices that aren't invoiced to them, then it's effectively a director's loan account transaction. The director has personally decided to pay these bills which relate to a trade of a different company and it's effectively his "drawings" and thus not an allowable expense in company B. Though I'm idly wondering if there is an argument for them being classed as pre-trading expenses? It's a bit of a stretch though. When I say a bit of a stretch, I think I probably mean wishful thinking..!

3. If, in order to trade with Company B, various suppliers chose to invoice Company B an "account opening fee" which may or may not be the same as the debt they were owed from Company A... then arguably these are Company B's expenses. But the supplier would have to invoice this as such and the two parties would have to agree these trading terms. While this presents potential ethical issues, I have seen it done and I'm not aware of anything that would get in the way of this (with the exception of the issues presented in point 1).

 

Disclaimer: my brain is currently very addled by revision for my ATT VAT exam next week so apologies if any of that either makes no sense or is just plain wrong, or rambling. Oh, and wish me luck please!

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By Marion Hayes
28th Oct 2011 16:30

@monsoon

I can't see how the payment of the debt would be possible unless the new company had bought the old client base from the liquidators including some debts.

Having said that you are a very brave 'lady' (assumed from picture) and I am sure we all wish you the best of luck in your exam!!

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By redninja13
28th Oct 2011 16:35

GOOD LUCK!!

@monsoon Thanks for the reply, I know this is very murky ground, which is why i wanted to research before i entered anything.

I was thinking about the scenario 3 and wondered if I could do that. 

After refusing to enter anything until i know what i am doing (and wont get in trouble for doing so) they have arranged for the accountant to speak to me next week, so i'll she what she says.

 

P.S. I have exams next week, so good luck!!!

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David Winch
By David Winch
28th Oct 2011 16:36

Just wondering . . .

I'm just wondering if there are any similarities between the names of company A and company B.  If so, do take care not to contravene s216 Insolvency Act 1986.

You also need to consider whether these payments are being made for the benefit of company B - because that could determine whether they are allowable for tax.

Get (paid for) professional advice.

David

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By redninja13
28th Oct 2011 16:38

@marion

The new company is trading the same as the old company, has diff directors but they're all part of the same team.

And we are in a remote area so if they were diff people, chances are they'd use the same suppliers or a similar combination

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By redninja13
28th Oct 2011 16:40

@david

No the names are completely different

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Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
28th Oct 2011 16:52

My logic in scenario 3 is as David says - if the payments are for the benefit of Company B. Redninja, if they were going to use the same suppliers, this helps. Why? If Supplier X says "I'm not doing business with you, your last company left me in the doo doo!" then Company B is up a tree without a paddle (mixed metaphors, I know). If Company B then says "is there nothing I can do?" and Supplier X says "Pay me £2000 and I'll open an account for you," then they have agreed trading terms and the £2000 is in the course of Company B's business.

Redninja - it's not about "if you can do that" (your words). It's about whether Supplier X has invoiced Company B. I wouldn't want to define the transactions as an accounting entry, I'd want paperwork to back it up. If Company B is just paying an old debt of Company A and that's all the paperwork says, then that is what is happening instead and needs to be accounted for accordingly. If Supplier X will only do business with company B if company B pays Company A's debt, then possibly there's a tax deduction there by virtue of it being implied trading terms, but I'm really not sure.

Good luck in your exams too (and thanks Marion, and yes, I'm female. When I'm thrice my age I want to look like my avatar :D)

 

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By redninja13
28th Oct 2011 16:54

@monsoon

I'm pretty sure all the suppliers would be more then happy to invoice company for the "Account Opening Fee" I just wasn't sure how legitimate this would be.

 

Thanks for your help guys I'll put the suggestion forward to the accountant

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By Tosie
30th Oct 2011 18:48

are you an accountant or book-keeper.?

If you are a book-keeper you need to ask the company's accountant how they want to deal with the entries.

The bottom line is that they are not company B's debts and all entries must be debited to the directors loan accounts.

Please don't involve yourself in any setting up account opening fees it could all come  back on you and end in tears.

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Replying to tracey2412:
Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
31st Oct 2011 10:50

Agreed

Tosie wrote:

If you are a book-keeper you need to ask the company's accountant how they want to deal with the entries.

The bottom line is that they are not company B's debts and all entries must be debited to the directors loan accounts.

Please don't involve yourself in any setting up account opening fees it could all come  back on you and end in tears.

I completely agree with this. Let the accountant deal with it - good luck in your meeting today.

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By redninja13
31st Oct 2011 10:47

I am a book-keeper

Hi Tosie

 

I am a book-keeper, apparently the accountant is coming to see me today :-)

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Replying to Flying Scotsman:
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By Tosie
31st Oct 2011 11:31

good luck

Hi redninja13

Good luck with exams and meeting with the accountant.

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