Hello
I am helping a business where it was previously a sole trader that incorporated into a limited company.
The business was sold as a going concern so took on debtors, creditors, VAT.
My issue is that they carried on using the same accounts software (Xero) without making any changes. This means I have balances for drawings, retained earnings etc from the sole trade.
If anyone can help me sort out what I need to journal to get rid of these entries that would be most appreciated.
Many thanks
Replies (6)
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I'd have thought what you would need to do at the very least is a closing journal the day they stopped being self employed.
If you know what you need to adjust you can still adjust/correct the balances using directors loan account as of the date of incorporation and any subsequent mispostings.
Their accountant will be able to sort this quickly enough at the right time. If they don’t have one then you can suggest they appoint one though I would have thought they must have one if they were advised to incorporate.
Their accountant will be able to sort this quickly enough at the right time.
Dunno about that.
It sounds like a reyt Gordian knot.
I suggest you change the financial year end to the last day as a sole trader. If possible, do a 'close year end'. (if you can't do that, you will need to journal off all expense accounts). Then all transferred assets should in theory add to the sum of capital introduced, drawings, and total profits to date. Then do a journal on day 1 of the ltd company debiting those accounts, and credit share capital with issued shares, and the balance to share premium account