Balance Sheet Report + Processing Provisions

But what are you hoping to get from the report? The numbers will not mean anything.

Indeed. But based on post #4 it seemed as if the report may have been confusing for @kobus_Jhg (debits and credits have a way of doing that for some); I just thought to provide another method that might have made more sense from their perspective.

@kobus_Jhg, if what we have suggested does not work for your needs, I would have to echo @Tut; what do you want to do with this report? You may be trying to use the wrong tool for the job. If you could provide an example of how you want use this to manage your business, the forum could likely provide better guidance.

@Tut @p4unger It is ok. It was a proposal and I never expected that I would get so much resistance.
By the way @p4unger I really do understand the debits and credits on the GL summary report. It is not confusing as you have said, but again this report gives the year to date (accumulative) information as well.

I need to have this information on a monthly basis not in an accumulative format as I have explained in order to see the differences per month whether the Assets, Liabilities and equity improve compared to the previous month or did it deteriorate. It would be used as a management tool only.

That is not correct. The General Ledger Summary report gives information for any period you define. It is not limited to the year to date. You can define a report for two days, a week, a month, a quarter, a year, or any other time period.

The report includes the net movement during the time period. It would give you exactly what you say you want to have.

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@Tut Can I have a few minutes?

Yes and that is why you can only see this difference by putting an end date for each of these months as the start date is the start date of the company. As was explained it does not make sense on balance sheets to enter interval dates as for P&L because it would no longer “balance” the accounting equation (equity = assets - liabilities). BS is about what you own and what you owe at any particular date. It would for example not make sense to compare data from January 1 to January 31, 2021, with data from February 1 to February 28, 2021, because you may have bought assets in May 2019 that you still use, and/or took loans in December 2020 that you still owe. So do as advised by:

@Tut @p4unger @eko Ok I see that the GL Summary report can do what I need, but I will have to use the work around as suggested by @p4unger due to the reason that I have to see this months next to each other. It is better than to print month by month and compare it.

@eko Your explanation makes very good sense

Thanx everybody. Manager is still the easiest software

It may be easier to use the standard Balance Sheet and define multiple monthly comparative columns like this.

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@AJD @Tut @p4unger @eko This is mine. the only problem is I have not done any journals yet, but it shows values of May.

That is as it should be. The balances remain the same because you still have those assets and owe the liabilities at the beginning of June; they will always carry forward at their previous amount.

If you subtract June from May, the result will be 0, which matches to you having no activity recorded yet.

A balance sheet will never start from 0, like a P&L, if that is what you’re looking for.

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@Tut @AJD @p4unger @eko Ofcause the liabilities will be there until it is paid. Yes this can work for me.

@kobus_Jhg, you may have valid reasons for organizing your chart of accounts the way you have, but I do not understand it. You are apparently making provision for all kinds of things. But such accounts would normally be asset accounts, not liability accounts. You do not, for example, owe anyone outside the business for potential donations. And it sounds as though you might plan to move money in and out of those accounts with journal entries. What is the point of that?

A liability account would be used when you owe money. For example, VAT collected from your customers is posted to a tax liability account because you owe it to the tax authority on behalf of your customers. While in the liability account, it offsets the asset that resides temporarily in your bank account because you collected the tax from the customer. That money, although in your bank, does not belong to you.

Did someone advise you to set up your chart of accounts this way?

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@Tut No we have done it for years. These are accounts we do not pay every month. it gets paid at the end of the year or when it is required. It is to ensure that there is sufficient funds available to do certain things. We use it as a type of a saving and that is why it is called a provision.

Obviously those funds are still in the bank account, but one can at any time check how much of what funds are available.

We do not owe anybody for something like Donations. You are correct, but the funds will be used for Donations when necessary. Then we Debit the Liability Account and Credit the Donations Account to clear the account. Then we make a payment via the bank.

With regard to the VAT. This is paid every 2nd month over to the authorities. Every 2nd month we do the journal Credit the Provision Account, Debit the Vat Account and pay the authorities via the bank.

This is an accepted way of doing it. Refer to a Google question below.
CaptureProvisions

I know what provisions are. This is not the place for debate about your workflow. But you are creating more work for yourself.

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@Tut With all due respect it is not me who debated the workflow. I explained your question.
With Manager.io it is very easy and quick to do these journals. Some other programs take a lot of time.

@kobus_Jhg there is absolutely no need to do that “clear the account” (reversal) transaction.
When you make the payment “via the bank” just post it directly to the provision account.
If over the financial year the provision amounts and the payment amounts are a mismatch then do a single year end journal adjustment covering all provision accounts.

Some provisions such as accounting fees could be adjusted when the invoice is received.
Say the provision account receives 100 per mth, so a total of 1,200 for the year.
If the invoice is for 1,500, then post 1200 to the provision account and 300 to the accounting fees account. So no other adjustment entries are required.

@Brucanna Thank You for your valuable input. We are still laymen at this and are doing this accounting for us to understand. The way I understand it the Provision Account is now a CR, which means the funds is showing in the Provision account, although we know it is actually in the bank.

In SA we have to pay 15% VAT or (Sales Tax) to the authorities.
When we do this provision we journalise the full amount incl the VAT to the Provision Account.

When we “clear the account” we DR the Provision account and CR the Expense account with the full amount incl the VAT. Let us assume we need to donate R1,000 In June 2021 to an institution, we do the following: -
We check the Balance Sheet how much funds is available. We currently have R1,200 in the Provision Account in June 2021.
We pay the Donation of R 1,000 through the bank to the Donations Expense Account.
R 868.57 will now reflect in the P&L report.
The VAT for the R1,000 (R 131.43) will be taken to the VAT Provision Account.
The Balance Sheet has not yet changed, because we have not done the reversal yet.
When we reverse the R 1000 From the Provision account, it will decrease the Balance with the said R 1,000 and clear the R 1,000 DR on the P&L account which was posted initially when the Journal was made.

I am just asking and not querying your suggestion. Your suggestion: -
We check the Balance Sheet how much funds is available. We currently have R1,200 in the Provision Account in June 2021.
We Pay R 1,000 directly from the Provision account through the Bank account.
The P&L does not reflect an expense have been paid.
The Balance Sheet has been reduced with R 896.57 and the (R 130.43) is posted correctly to the VAT account.
Would it be correct if there is no change on the P&L report?

Yes

Correct, as the P&L has already reflected the expense via the provision entries, the P&L doesn’t need to directly reflect the payment.

However you have another issue which maybe the cause of your current “flawed” process.

This is incorrect. Your journal should only reflect the expected expense “excluding” VAT. VAT should never be included as part of the P&L expense account amount as your entry is only an internal transaction unrelated to any supplier’s tax invoice. So taking the previous accounting fees example the transactions would be

Monthly Provision
Dr Accounting Fees > 100
Cr Accounting Fees Provision > 100

Annual Provision therefore is 1,200

The actual suppliers tax invoice is for 1,500 plus 15% VAT = 1,725

That invoice is then processed as.
Dr BS > Accounting Fees Provision > 1,200 (plus tax code VAT 15%)
Dr P&L > Accounting Fees > 300 (plus tax code VAT 15%)
Dr BS > VAT Provision > 275 (via the above tax codes)
Cr BS > Accounts Payable > 1,725

The exclusion of the VAT from the provision shouldn’t change this management tool as the VAT payable (225) is going to be a contra against any VAT receivable so the net effect is zero.

How so. The contra to a P&L accrued expense is a BS liability provision. If you are going to be debiting an Asset provision account, what account are you crediting to accrue the expense - P&L income ???

@Brucanna Thank You for your assistance. I will be using your suggestion. It is much less work.
I have one question though: -

What if the invoice is less and one has to clear the account at year end?

I was not referring to crediting any P&L account. I was referring to partitioning available funds to designate a portion of them as having been set aside for whatever you are making provision for. So if you are debiting an asset provision account, you would credit some other asset account, most likely a bank account. In Manager, this would most likely be done in an artificial bank account. That is why it all seemed pointless and unnecessary work to me.

That is all @kobus_Jhg is really doing: setting aside money to be sure it is available for future uses. There are no actual liabilities of the business involved, so using liability accounts does not seem appropriate to me. This is not like, say, an annual insurance premium bill that might be posted to a liability account and accrued monthly to an expense account.