|
Two methods are given:
- Data entry for Invoice Based Accounting systems. This method should be used where VAT was claimed at the point of the invoice date in the old year.
- General Purpose Journals for Cash Based Accounting systems. This method should be used in order to enter a closing balance of a creditor or accrual at the end of the old financial year - assuming the VAT will be claimed in the new year.
General Purpose Journals for Cash Based Accounting systems
A Creditor is a supplier that your business owes money to at the end of the year and will be paid using a cash analysis transaction in the new year. The net figure is accounted for in the current year's accounts but the VAT (if applicable) will be claimed at the point of payment in the new year and has not yet been accounted for.
An Accrual is a figure that has been apportioned to the current year's accounts but will not be charged or paid until the new year. An example of this would be accountancy fees. The final fee to be charged in the new year will contain a proportion relating to the old year and a proportion relating to the new year. The old year's share is shown as a closing accrual. An accrual is treated in a similar way to a creditor.
A Debtor is a customer that owes your business money at the end of the year but for whom an invoice has not been raised e.g. First Milk. The net figure is accounted for in the current year's accounts but the VAT (if applicable) will be claimed at the point of payment in the new year and has not yet been accounted for.
A Prepayment is a figure that has been charged in the current year but relates to next year's accounts. An example of this is the rental on a telephone line, which is paid in advance but is removed from the current year's accounts and will be allocated in the new year. A prepayment is treated in a similar way to a Debtor.
General Purpose Journal
Creditors/Accruals
- Make sure that the appropriate creditor/accrual code is set up under Current Liabilities.
- Go to General Purpose Journals.
- Insert an entry date of the last day of the financial year (i.e. period 13).
- Debit (i.e. increase purchases/overheads or reduce sales) the relevant heading code net of VAT.
- Credit (increase) the creditor code in the Current Liabilities with same amount.
This will create a closing balance under current liabilities in the old year and therefore an opening current liability balance in the new year.
Debtors/Prepayments
- Make sure that the appropriate debtor/prepayment code is set up under Current Assets.
- Go to General Purpose Journals.
- Insert an entry date of the last day of the financial year (i.e. period 13).
- Credit (increase sales or reduce purchase/overheads) the relevant heading code net of VAT.
- Debit (increase) the debtor code in the Current Assets with same amount.
This will create a closing balance under current assets in the old year and therefore an opening current assets balance in the new year.
After the Year End
Creditors
For a creditor (rather than an accrual), the opening balance may be left until the payment is made. The payment should be entered against the same creditor code as above, entering the VAT as normal. The payment will appear on the cashflow against current liabilities and will remove the opening balance.
Alternatively the actual payment may be posted to the relevant heading code, entering the VAT as normal, and the general purpose journal posted above may be reversed using a date in the new year. This will then show under the correct code on the cashflow the net effect on the Profit & Loss again being zero.
Accruals
For an accrual, it should be reversed using a date in the new year. This will then credit the heading code on the Profit & Loss. For example if the accrual is for accountancy fees, reversing the journal will reduce (credit) the balance against the overhead code. When the final payment is entered for accountancy fees the proportion relating to the old year will increase (debit) the balance back to 0 - therefore the net effect on the Profit & Loss being zero. The cashflow will show the whole payment against accountancy fees.
Debtors and Prepayments should be treated in a similar (but reverse) fashion.
For more help on Farm Business Manager call our Adviceline team on 01594 545022 or email us at support@farmplan.co.uk.
|
