Thanks for the link! That section makes complete sense!
When it comes to quarter end (in line with our quarterly vat period) we perform a sweep across all departments to ensure that we have booked and accounted for all invoices that have been received
Therefore based on this it wouldn't class these as errors but purely timing differences as we are not in receipt of invoices at the time of the VAT return
HMRC might tut were they to inspect but your late recovery of input tax is very low on their priorities.
As a company, your cashflow is impaired by delayed recovery of the input tax but you still have to pay the suppliers on time. I think you need to have a word with the people who are hoarding invoices. If you've missed the return, they must have been holding on to them for 3-4 weeks.
There is the wider question of why invoices aren't coming directly to the finance department (stops anyone hoarding them). Perhaps you should be insisting that all expenditure requires a formal order in advance (not one raised at the time the invoice lands).
I agree, with the late recovery it really only affects the company with cash flow more than anything else really
The reason they are not passed directly to the finance company is because they have to go through an internal approval by the person/department responsible for the expenditure before it is paid
My thoughts exactly but I have had differing opinions as others seem to think that because the money in essence is going back to the same person that it should be treated as a reduction in revenue
I didn't agree with this approach and also believe it should be treated as two seperate transactions and perform the contra between the debtor and creditor account if they are indeed paying the net amount
Correct the auditors have provided a schedule of "fixes" so that we arrive at the retained earning as per the Financial Statements but these throw our current year balance sheet figures (prepayments using the example above) and the only way I can see to fix this is to "clear" the difference through the P&L
If I was to do the below first
Dr Prepayments
Cr Retained Earnings
Followed by
Dr P&L
Cr Prepayments
Over the two year period the financial statements show a credit in the P&L in FY18 (audit "fix") and a debit in FY19 (retained earnings "fix")...............
Still learning so forgive me if I am not so knowledgable in this area
My answers
Thanks for the link! That section makes complete sense!
When it comes to quarter end (in line with our quarterly vat period) we perform a sweep across all departments to ensure that we have booked and accounted for all invoices that have been received
Therefore based on this it wouldn't class these as errors but purely timing differences as we are not in receipt of invoices at the time of the VAT return
Thank you all for your help!
Under £10,000...
I agree, with the late recovery it really only affects the company with cash flow more than anything else really
The reason they are not passed directly to the finance company is because they have to go through an internal approval by the person/department responsible for the expenditure before it is paid
My thoughts exactly but I have had differing opinions as others seem to think that because the money in essence is going back to the same person that it should be treated as a reduction in revenue
I didn't agree with this approach and also believe it should be treated as two seperate transactions and perform the contra between the debtor and creditor account if they are indeed paying the net amount
Correct the auditors have provided a schedule of "fixes" so that we arrive at the retained earning as per the Financial Statements but these throw our current year balance sheet figures (prepayments using the example above) and the only way I can see to fix this is to "clear" the difference through the P&L
If I was to do the below first
Dr Prepayments
Cr Retained Earnings
Followed by
Dr P&L
Cr Prepayments
Over the two year period the financial statements show a credit in the P&L in FY18 (audit "fix") and a debit in FY19 (retained earnings "fix")...............
Still learning so forgive me if I am not so knowledgable in this area
Appreciate everyones assistance in this
We are using Oracle and so have closed the previous year and so rolled forward the current retained earnings into the prior retained earnings
Hope this helps
This is the opening balance adjustment that the auditor also stated
What throws me off is exactly what you have stated "the balance in your prepayments should also be incorrect by the same amount"
As the prepayments balance sheet figure is now effectively incorrect by this amount, should we not clear the difference through the P&L?