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Unallocated Cash balance

Is it best to allocate to drawings?

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Good Afternoon,

A new customer who came to us last year had shocking bookkeeping so we put them onto xero and actually they have done a very good job. The only failing seems to be on the cash transactions. The bookkeeping shows a £5,000 difference at the year end to the amount that they actually held (counted at the time). The client has gone through the cash transactions - confirmed the sales are correct, transfers out and expenses etc and does not deem there to be any more. The client has also advised it would not be normal for them to retain cash as drawings but in the absense of any other information they would "suck it up" as drawings in the year. They will closely monitor this this year to determine if any theft is taking place or invoices going amiss.

Would this be best to allocate to drawings or is there anything else that can be done?

thanks

Replies (13)

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By Duggimon
11th Sep 2019 13:09

Was the opening balance correct?

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Replying to Duggimon:
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By PALacc
11th Sep 2019 13:42

They have confirmed that the amount at the year end in dec 17 was correct. So we provided a list of the cash transactions to review and the increasing balances but they have been unable to identify any incorrect postings.

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By johngroganjga
11th Sep 2019 13:44

And which way round is the difference? The normal way of dealing with this is to put a credit adjustment to sales and a debit adjustment to drawings.

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Replying to johngroganjga:
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By PALacc
11th Sep 2019 13:56

So currently the cash balance shows as £9,500 but they have confirmed the balance of £4,500 at the year end.

So the cash needs reducing by £5k

they have been through the sales marked as paid cash and confirmed fine - they feel they have not taken the £5k as drawings but in the absense of any other expenses and the cash sales being confirmed is it just appropriate to mark it as paid as drawings to the directors?

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Replying to PALacc:
By johngroganjga
11th Sep 2019 14:02

So it goes to drawings unless they can document unrecorded business expenses.

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Hallerud at Easter
By DJKL
11th Sep 2019 14:03

Surely checking for incorrect entries is not the issue it is the far more difficult checking for omissions.

If they buy milk, sugar and newspapers this is very often an area where chits are non existent and omissions can occur. For example we take two office papers a day and over the course of a year that is nearly £1,000, same sort of thing re cartons of milk, bags of sugar and to a lesser extent hand soap /washing up liquid etc.

We have eliminated the bigger ticket items of toilet rolls,hand towels , coffee and tea bags from cash expenditure, these are now sourced from entities with which we hold accounts (they are also a lot cheaper bought in bulk- a pallet of toilet roll at a time), but before they were these also mounted up- when I first came into this job our cash expenditure was circa £5,000 a year, now it is down to about £1,500.

A prompting Q & A ,asking where/how do you buy these sorts of things and others like light tubes and bulbs etc might jog memories.

p.s. Should have also said you ought to discourage cash expenditure and encourage banking all takings , there is a decent chance that this difference has cost your client circa £1,000 in CT relief plus possible sec 455 costs on top, banking intact and paying the bank charges is the way to go.

If they must use cash use a petty cash imprest- draw cheque for previous period spend to replenish the float, this at least controls and rewards keeping receipts; in my experience cash and clients do not mix.

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Replying to DJKL:
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By atleastisoundknowledgable...
11th Sep 2019 18:27

DJKL wrote:

... chits ...

Shhh - think you’re showing your age there ...

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Replying to atleastisoundknowledgable...:
Hallerud at Easter
By DJKL
11th Sep 2019 18:41

Don't I know it, am just off the phone, one of my sisters called me to advise I am a great uncle yet again ( that's three to date and rising).

No grandchildren yet but my pair are amongst the younger cohort of the cousins, with my oldest getting to 28 next month, so expect they could follow soon enough.

To cap it all have finally given up the cigars, I am now smoking a pipe; now just need a flat cap as I already have the slippers.

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By Moonbeam
11th Sep 2019 15:22

I am guessing they are a retailer. I am also guessing that they are not allocating cash received against sales in the correct VAT and or accounts period. I have a client at the moment who got themselves in this sort of situation. He paid in £5k worth of cash into the bank in April, but it related to sales prior to 31 March - his year end. Meanwhile the matching sales invoices produced by his epos software were being paid off by the bank account receipts instead of cash.

Find out what their method for allocating cash is and correct it. I would leave the balance on the books until next time, but monitor the cash balance quarterly with the VAT return to make sure all is OK. If their bookkeeping used to be awful it's pretty likely that they aren't being as meticulous as they need to be on this one.

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Replying to Moonbeam:
By johngroganjga
11th Sep 2019 16:20

Moonbeam wrote:

I would leave the balance on the books until next time ...

I disagree strongly. Only a charlatan would knowingly include a non-existent asset on a client’s balance sheet.

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Replying to johngroganjga:
By Moonbeam
11th Sep 2019 18:46

Wow! I've said the OP needs to investigate how they enter cash first. Clearly if they are entering it all in the right period (I have serious doubts) then the balance would need to be written off to DLA.
My client who has this problem is a highly intelligent person, but he has struggled to get the time to do things properly, and if he's got these issues I assume they are widespread bearing in mind the brainpower of the average bookkeeper.

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By atleastisoundknowledgable...
11th Sep 2019 18:33

On a similar vein, I have a restaurant client who spends £2.5k-£5k pcm on ‘sundries’ for which she doesn’t have receipts. I can imagine that it’s correct. Let’s say £50k pa. turnover is £700k

Someone has proposed having the expense in the P&L, then adding it back in the tax comp. my personal view is that this would just highlight it to HMRC and invite an inspection.

Straw poll - what would you do; a) DLA, b) P&L, c) P&L and CT add back, d) Other.

Thanks

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Replying to atleastisoundknowledgable...:
Hallerud at Easter
By DJKL
11th Sep 2019 20:41

Other

Imprest is the way to go, no receipt no cash withdrawal.

Point out to them that if they have no systems anyone can steal from them with impunity

Tell client they either need to promise to stop it (implement new systems )or find another accountant.

I suspect if the client claimed genuine costs I would possibly sit down for hours with them and work out what it could be for by heading, I would check reasonableness of their suggestions re quantum/cost, so if say no bar lemons purchased in the records estimate what they are likely to spend on that head in a year and adjust etc

Once reasonable estimates formed incorporate into books but advise will be highlighting estimates and uncertainties in the accounts and submissions to HMRC.

One of my early jobs during my apprenticeship was reconstructing the books of a chain of ten off- licences where we had weekly sales summaries, wages records, cheque stubs and bank statements and nothing else, half the work was writing to suppliers, initially asking for copy statements and then duplicate invoices- terrible job, I think I was employee three to be dumped doing it, but it did teach patience and perseverance- especially writing up by hand (not many laptops in 1987)

p.s. I seem to recall I got told time ledger cost was up to circa £8,000 when I was doing it. It was more than one year's books, two or three I think, but to put that in perspective I think I was paid about £5,000 per annum back then- a hefty fee.

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