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When to add not invoiced accrued expenses to P&L?

At my new job there are accrued expenses in the BS from 2012. The supplier never invoiced us .

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At my new job there are accrued expenses in the BS from 2012. The suppliers never invoiced us and by now it is highly unlikely we will pay these.

 

How long to wait before removing these values from accrued expenses into profit?

Many thanks,

Replies (23)

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RLI
By lionofludesch
24th Jul 2021 10:13

Probably already way overdue.

They should've been removed at the point that it was decided that they weren't going to be paid - for whatever reason.

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Replying to lionofludesch:
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By thevaliant
26th Jul 2021 09:23

I always like adding my 'dodgy' audit stories when I see things I recognise.

Decent sized audit client (wouldn't need an audit now - but wouldn't be far off the limit). Owned by one person.
Client would accrue costs he believed were genuine and would be invoiced. Most would, a few wouldn't. Some cases he overaccrued, just in case.

These built up and up and never got released. Eventually the number became so large, accruals was taking over the balance sheet.
When we, as auditors, had it out, he refused to release any accrual less than six years old, despite us knowing that if it hadn't been invoiced in a year, it was probably never going to be.

Accruals continued to be exceptionally high, making a mockery of the balance sheet.

Completely unrelated the CT creditor never was very high. I wonder why.

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Replying to thevaliant:
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By Tax Dragon
26th Jul 2021 09:46

thevaliant wrote:

CT creditor never was very high. I wonder why.

HMRC is one supplier that does invoice on time. They've even brought in a self-invoicing system, where the customers themselves raise the invoices. They're well ahead of the game at HMRC.

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Replying to Tax Dragon:
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By Tax Dragon
26th Jul 2021 10:29

(I knew what you meant, Val, I was just teasing. Actually I suspect my GSOH is a bit much for people on a Monday morning... away with you, TD. Leave the nice people of Aweb alone. Maybe come back to play at the weekend?)

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By thomas34
24th Jul 2021 17:16

Agree with lion but if the supplier has not indicated that he wants paying for the past 6 years he will fail to enforce the debt under the statute of limitations.

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Replying to thomas34:
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By Pashton
24th Jul 2021 21:00

Thanks so much. Therefore, to be on the safe side, we should have a policy of reverting accrual after 6 years -- as an Invoice won't be enforceable due to the state of limitations.

Do you agree?

Thanks (1)
Routemaster image
By tom123
24th Jul 2021 21:03

Are you certain you know what these were for?

TBH, assuming we are not talking 10s of K, I would be writing them back now.

Why didn't accruals get looked at every year end?

If I know I am due an invoice, I will also ask for them after a few months. I consider that the honest thing to do.

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Replying to tom123:
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By Hugo Fair
24th Jul 2021 21:59

"If I know I am due an invoice, I will also ask for them after a few months. I consider that the honest thing to do."

I agree, but it's become a surprisingly common problem.
For most of my life, any promise made to me by a tradesman would be honoured (or at least acknowledged and argued over later) - and this certainly included sending me invoices.
But alongside the general fall-off in sticking to promises (whether to issue a quote, deliver a purchased item or whatever), I now encounter several instances each year where I only get to pay a supplier after I've chased them for an invoice!

FWIW the incompetents have ranged from very small companies to very large building companies and even a solicitor ... so (in my mind) it can only be due to an over-reliance on 'digital systems' (e.g. if their phone reminder or whatever is missed or fails to bleep, then it can't really be real)? I truly despair sometimes.

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Replying to tom123:
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By Pashton
24th Jul 2021 22:16

Tbh, I'm new to the company so hard to know what happened in the past. Also, employees leave, making it difficult to know if the services were even provided or not at the time.

Due to this, the policy is not to chase after and simply reverse the accruals after a certain time frame (I'm guessing 6 years as per statute of limitations) if not invoiced before then.

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Replying to Pashton:
Melchett
By thestudyman
25th Jul 2021 08:52

Not sure if this is the best policy. Personally I would chase up suppliers regularly (monthly) if invoices are not supplied, but services or goods delivered.

You will also miss claiming input tax on the invoices if VAT registered.

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Melchett
By thestudyman
25th Jul 2021 08:50

I would guess perhaps the creditor could have also gone out of business.

In any case its outside the statutes of limitation so would write this off.

Thanks (1)
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By paul.benny
25th Jul 2021 16:45

For all the comments about whether the money is due, I think it more likely that the invoice was paid and the accrual never released. Your predecessor (s) have just carried forward accruals without proper thought. I'd be releasing after 1-2 years unless there is a compelling reason to retain.

Thanks (3)
Replying to paul.benny:
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By Pashton
25th Jul 2021 17:49

Thanks Paul, but not the case as purchase invoices can only be entered -- in our ERP -- if the accrual is previously added.

So, small chances of paying an Invoice without reversing the accrual.

Atb,

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Replying to Pashton:
RLI
By lionofludesch
25th Jul 2021 18:00

Pashton wrote:

Thanks Paul, but not the case as purchase invoices can only be entered -- in our ERP -- if the accrual is previously added.

So, small chances of paying an Invoice without reversing the accrual.

Atb,

Seriously ?

You have to accrue for an expense before you can enter an invoice ?

What's the sense in that ?

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Replying to lionofludesch:
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By paul.benny
25th Jul 2021 18:24

Typically, receipting goods against a purchase order generates an GRNI accrual and processing the invoice against the order converts that accrual into a liability on the supplier ledger.

Some companies try to enforce a similar process for non-stock purchases, the theory being that if order generation and 'receipting' are segregated, all of the approvals are captured at order stage. If goods/service are receipted correctly and invoice matches, no further approval is needed.

And to answer the OP's point - just because that's the process today, doesn't mean it worked that way in the part. And also doesn't mean that it's adhered to 100%.

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Replying to paul.benny:
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By Hugo Fair
25th Jul 2021 20:22

A great explanation of (one aspect of) how accounting as a tool for supporting operational management differs from the mere preparation of accounts.
And, yes, like any process it's not a good idea to start with the presumption that it has been followed rigorously every time!

Thanks (3)
Replying to paul.benny:
RLI
By lionofludesch
26th Jul 2021 06:51

paul.benny wrote:

Typically, receipting goods against a purchase order generates an GRNI accrual and processing the invoice against the order converts that accrual into a liability on the supplier ledger.

Some companies try to enforce a similar process for non-stock purchases, the theory being that if order generation and 'receipting' are segregated, all of the approvals are captured at order stage. If goods/service are receipted correctly and invoice matches, no further approval is needed.

And to answer the OP's point - just because that's the process today, doesn't mean it worked that way in the part. And also doesn't mean that it's adhered to 100%.

So these accrusls could simply be phantom orders that were never fulfilled?

Thanks (0)
Replying to lionofludesch:
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By paul.benny
26th Jul 2021 08:34

No - an order alone won't generate an accrual.

If the OP's accrual is GRNI, the most likely explanation is that there was a mismatch between quantity receipted and quantity invoiced - unit of measure, for example. If 480 units are receipted against an order for 40 cases of 12, an invoice 40 units can be processed successfully, but it will leave an orphan accrual for 440 cases.

Best practice is to review GRNI regularly for old items .

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Red Leader
By Red Leader
26th Jul 2021 12:53

I'm so glad I don't work in industry any more! The a/cs dept is probably glad as well.

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Routemaster image
By tom123
26th Jul 2021 13:01

GRNI is a pig to manage - and I get where you are coming from if you have a 'big' system.

Presumably you have no supplier statements with items that old?

Having been in a similar situation, I would look at the recent past (say 2021) and ensure nothing old is hanging around from that period.

In due course take a decision about the oldest stuff.

At least that way you are not getting in a worse pickle.

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By Brend201
29th Jul 2021 10:44

This could also be a prompt to readers to assess their own processes:
Are we billing everything we supply, accurately and on-time? Do any of our customers have accruals relating to us in their books?

In addition, how would most businesses respond to an invoice for goods or services provided five years ago? I suspect the typical response would be negative, regardless of whether there is an accrual in the books or not.

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By [email protected]
29th Jul 2021 11:54

Highly likely that GRNI has been booked in twice, adjusted at stock count, written off etc.
As Paul Benny pointed out the units received vs units of sale can really mess stock and GRNI accruals about big time..

And you're left with the accrual hanging around. I'd look to release it. but while you're at it get a proper stock check done and adjusted for. If there are significant write offs to be done you can release the accrual at the same time to soften the impact.

As you're new - review the balance sheet and flush the skeletons out until you're happy to "own" the balance sheet.

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Old fat furry cat-puss
By bagpuss1968
29th Jul 2021 15:30

If you know which suppliers are meant to be associated with which accruals, ask for a supplier statement - any of the accrued amounts which are not on that statement can then be released back to the P&L?

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