accrued expenses

accrued expenses

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Can anyone help me please, I am in the process of finalising year end accounts for a client for the first time and am having difficulty with the accrued expenses that the previous accounts person did. the accrued expenses were not reversed in previous years on sage but were in the actual financial statements. so I now have an accrual left on sage how do I deal with this as if I add the accruals figure to the relevant expense accounts in the p/ then the overall p/l figure is not matching the b/s.

im not sure if I am looking in too deep into it and confusing myself so thought I should ask for help,

thanks

Replies (24)

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By johngroganjga
12th Jan 2016 11:45

You reverse the b/fwd accruals back to the expense accounts they relate to. Then introduce new year end accruals.

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By lisacolbourne
12th Jan 2016 12:04

hi john,

 

many thank for such a swift reply, I understand the concept of reversing the accruals however the invoices for the following year which would be the new year accrual are already on the system, so if I create a new accrual its not going to be correct is it??

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By Ruddles
12th Jan 2016 12:11

Surely it's simply a case of Dr Accruals £x Cr Retained profits £x on Sage?

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By johngroganjga
12th Jan 2016 12:11

Not sure what you mean. By definition, any new accrual you create for this year end will not include any invoices posted during the year.

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By Andp
12th Jan 2016 12:44

what is the date of your end ?   and what dates are on the invoices you refer to ?

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Replying to North East Accountant:
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By lisacolbourne
12th Jan 2016 16:20

accrued expenses

Hi Andp,

the scenario I have is that up to the end of 2014 accounts there was an accrual on the accounts of £2,429.00. I have journalled out from the accrued expenses to the relevant expense accounts (gas/electric was understated telephone and prof fee's overstated) leaving me a balance of £1553.28CR on the accruals. My expense accounts in question now have the same figures on sage as what has been recorded on the Financial Statements over the previous periods(3 years).

Where I am getting confused is how do I reverse this existing accrual as if I do it next year I will be understating the actual expenses in that year!!!!

is this correct or am  l looking at it in the wrong way.

 

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By ireallyshouldknowthisbut
12th Jan 2016 13:49

.

Lisa, if your boss has dumped this on your and you are not ready, then prepare a list of questions and points for review and ask them to go over it with you.  Chances are they will be able to cover these points in seconds so it wont be a big problem for them. It will be a big problem if you muck it up and they have to unpick it.

From a management point of view it is unrealistic to ask someone to  complete their first set of accounts in January for a client without proper support, especially if they are a bit wobbly on double entry bookkeeping, and most bosses will realise this if you challenge them gently and ask for some support. 

 

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By johngroganjga
12th Jan 2016 16:30

So what was the balance on the accruals account in the nominal before your reversing entry? You say it was £1,553.28 after but what was it before? 

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By lisacolbourne
12th Jan 2016 17:01

Hi and many thanks for helping me out with this: I do have it all on a spreadsheet but am unable to attach however please see below:

Original accrual which was done for 2012/2013 was as follows:

                                                        DR                                CR

Sub cons                                       15629.56

gas                                                 377.33

electric                                           222.56

telephone                                       286.37

accountancy fee's                          1100.00

Accruals                                                                        17615.82

 

In 2013/2014 £15186.82 was debited on the accruals with the year end journals but the actual expense accounts were not touched, this ended up with the accruals standing at £2429 at the end of the period 2014. Through my investigation I have noted how much has been recorded on the f/s's for all 3 years and what is actually on sage. I came up with the gas/elec being understated and telephone and acc's fee's being overstated, I have done a journal so that all 3 years invoices reflect and agree to what has been declared in the previous years and current years accounts, but I am still left with an accrual and  unsure how to get rid of it, there have been invoices input for 15/16 but not as an accrual so if next year I reverse the accrual against these invoices it will not show the correct charges for 15/16. I hope all that makes sense

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By johngroganjga
12th Jan 2016 17:33

So you need to ask whoever prepared the 2014 accounts for a breakdown of the £2,429 accruals in the 2014 accounts. Then you can move on.

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By lisacolbourne
12th Jan 2016 17:43

thank you for your help, but can you see were I am coming from with my query or have I spouted a load of gobbaldy gook :(

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By Bungo
12th Jan 2016 18:01

Practical
Look at your accruals. If you do not believe that you need these accruals, then you reverse them back to the same account they were booked against in first place.

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Replying to Wanderer:
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By lisacolbourne
12th Jan 2016 18:09


I know I may sound like I don't understand the accruals concept but I do, what's confused me Is that the accrual reversal was not done to match the original accrual reserve, and I am unable to contact the previous accountant so am at a loss on what to do with the accrual sitting there as it has no expense account to be reversed to, thanks

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By Ruddles
12th Jan 2016 18:42

???

Accruals account was debited, but the expenses were untouched??? So where did the credit entry go???

If you're not able to find out the history of the adjustments, clear out the accruals against sundry expenses and move on.

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By lisacolbourne
13th Jan 2016 09:51

accued expenses

Thanks all for your input, its much appreciated. its the first time I have used this but it has been great being able to ask questions and people get back to you with help. many thanks all!!!

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By Jaggadaku
13th Jan 2016 10:57

Accrued expense balances

I agree with Ruddles posts. 

However just check your Retained Profit account balance - should agree to the financial statements - else this maybe where your adjustment with accruals is made. 

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By Andp
13th Jan 2016 12:01

Out of interest what is draft turnover and profit or loss as at YOUR year end. 

I ask because Ruddles has the best solution thus far.

eg If sales is £10,000 or less - more work is needed 

if sales is £100k plus - write off as per Ruddles solution and move on 

You will go mad trying to work out and correct the previous accountant's errors !( If errors exist of course )

 

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By johngroganjga
13th Jan 2016 12:09

Errors?
We are not told that there any errors. Only that the previous accountant in unable (for unknown reasons) to be contacted for a breakdown of the 2014 accruals figure so that it can be reversed correctly.

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By Andp
13th Jan 2016 12:39

Lisacolbourne wrote  “what's

Lisacolbourne wrote  “what's confused me Is that the accrual reversal was not done to match the original accrual reserve, and I am unable to contact the previous accountant so am at a loss on what to do with the accrual sitting there as it has no expense account to be reversed to, thanks”

not done – error ???

 

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Replying to Jason Croke:
By johngroganjga
13th Jan 2016 14:25

Error

Andp wrote:

Lisacolbourne wrote  “what's confused me Is that the accrual reversal was not done to match the original accrual reserve, and I am unable to contact the previous accountant so am at a loss on what to do with the accrual sitting there as it has no expense account to be reversed to, thanks”

not done – error ???

That was, we are told, an entry in the 2014 year to reduce accruals to £2,429 at the 2014 year end from whatever they had been at the 2013 year end

We are not given any reason to think that £2,429 was not the correct figure - only that for unknown reasons the accountant whose figure it is can't be contacted to explain how it is made up. 

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7om
By Tom 7000
13th Jan 2016 14:12

I dont want to appear harsh but

If you are a practicing accountant rather than an inhouse bookkeeper

Have you had any formal accountancy training?

Have you got professional indemnity insurance.

Because if you cant deal with accruals, you need to think if you are in the right job, because this is pretty basic stuff.

If you are a bookkeeper your quastions are fair enough, call the accountants and they will explain.

 

 

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Replying to DJKL:
By johngroganjga
13th Jan 2016 14:28

Accountants

Tom 7000 wrote:

If you are a bookkeeper your questions are fair enough, call the accountants and they will explain.

The whole point of this thread is that the OP can't, for some reason which has not been explained, contact the previous accountants, which is of course the obvious thing to do. 

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By kiwilondon99
13th Jan 2016 18:17

'invoices' when receieved went AP & Accruals - thus leaving the balance in accruals ?  is this what occurred.  In any event Current year will correctly need to be reconciled.  and current year accounts will reflect a catchup adjustment to be made - if there are no matters still accrued for and not yet paid/ but payable / liable from those prior years

 

Out of interest are there any outstanding issues-legal or supplier account or 'otherwise items' which may account for the accrual differences

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Stephen Quay
By squay
14th Jan 2016 14:54

VAT, just a thought

Where the client is vat registered accruals are always treated net of vat. Where the client is not vat registered the accruals will be treated gross. A complication arises where the client is vat registered but using the flat rate scheme in which cases accruals will be treated gross. We don't know the vat status of the OP's client but given the size of the discrepancy could the treatment of vat be the reason?

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