I was finalising annual accounts with my accountant first time using manager and it worked brilliant.
Unfortunately my previous accountant didn’t do good job and there were plenty mistakes to adjust using journal entries and it worked perfectly. The only issue which we could not fix is due to limitation of Bank Accounts not showing up in Journals and after searching in forum I can see reason for that.
Issue: Previous year accounts missed my credit card bank account all together.
Had to be -£400, but was £0 and none of transactions made expenses
I did add starting balance of -£400 to credit card account to be able to reconcile all transactions, but in last year report it shows as £0
In order to fix missed expenses my accountant wants to bring all expenses on credit card into this years expenses accounts using journal entry making starting balance £0.
Due to limitation we can’t make that journal entry, and even if we could bank transaction reconciliation would be broken
Can anyone advice how to adjust for this situation?
Which year are the credit card transactions missing for?
Which year’s accounts are you finalizing?
Which year does your new accountant want to bring some previous year’s expenses into?
What start date do you have set in Manager?
Hopefully, your answers will clarify what looks like a bad situation. It sounds as though your new accountant is suggesting that you falsify your records by moving expenses from one year to the next. If that is the suggestion, that probably counts as tax fraud, because it would artificially reduce your net income for the year into which you move them. But I confess to not understanding your situation very well.
Instead of doing a Journal Entry as at Jan 1 2017 to take up the 400 in expenses missing from 2016, do a Credit Card > Spend Money as at Jan 1 2017.
If those expenses had been taken up in 2016, they would have been entered via Spend Money transactions, so the same applies in 2017, just belated.
The option is to take them up as an accrual Journal, but then you are left with a libility account which may never use again.
The comments about fraud and falsify of the records are complete sensationalism.
If one doesn’t understand the situation then they shouldn’t be voicing such strong comments.
Your 2016 profits were overstated as legitimate expenses that should have been claimed in that year weren’t - so income tax was overpaid
Your 2017 account will include those expenses so over the two years things will balance out.
That will depend on your local tax laws. That is why I said “probably.” The current situation is that you overstated your income in 2016, which the tax authority may not care about since it works to their favor. They can hardly penalize you for paying too much tax.
But moving the expenses into 2017 will understate your 2017 income, and that they will definitely care about. I’ve never dealt with your tax authority, but the notion of balancing things out over two years would not be acceptable anywhere I know of. One of the issues is that your income tax rates may be progressive, with higher marginal rates the more you make. So the total tax amount might not come out even. It could be more than a matter of timing.
If nothing else, moving expenses from year to year could be taken as a sign of poor accounting in general and might lead to further scrutiny if you were audited. In some jurisdictions where I have experience, doing this is explicitly illegal no matter what the effect on total taxation.
I find it very difficult to believe your accountant is recommending this. I believe you must have procedures for amending prior years’ tax filings, and I would personally do that. Of course, because such an amendment would lower your 2016 taxes, you will want to be sure you can document all these expenses very well.
Given the size of this problem, putting a January 1, 2017 start date on Manager and starting over is a reasonable choice. The problem is that you need to establish all the starting balances. Depending on what your credit card charges were for, they may affect balance sheet accounts. So you might have to put them in anyway. Then, there is no point in starting over.
It hasn’t been mentioned yet, but perhaps you can import your credit card statements as bank statements. Some card issuers have the capability of exporting statements; some do not.
In the four tax jurisdictions that I operate, there are no such prohibitions.
Business are forever having minor income and expense yearend anomalies and 400 is minor.
It isn’t of sufficient size or importance to warrant the amending of a prior year tax filing, in fact, even at a tax rate of 40 % you are only talking of a possible 160 income tax variance.
Any tax department which is going to focus on that 2017 amount must be very draconian, especially as they had already had the 2016 income tax gain in their pocket.
In closing, I am sure the accountant concerned having already detected the previous year’s missed deductions has a clear understanding of their legal options.
Most apreciated @Tut on worst scenario and all taken into account. I need most transparent way to document that. Better be informed when surprised.
Regards amendment procedures, I don’t know about annual tax, but regards VAT it is allowed to submit ammendment up to £1000 in subsequent returns. I will double check it but i assume it woul be similar.
I have all historic transactions in manager so transparency is not an issue.
I can put it as spent in current credit card bank account, because i will not be able to reconcile it later. So I think I will create new bank account with summaries of expenses on a first day. Like Travel Expenses, Stationary, etc. And will have attached calculations with detailed transactions from bank. I will group it with credit card account, so it balances to 0 on first day.
So it will be clear where and why with notes.
I will do that tommorow and share details for scrutiny.
@Brucanna you mentioned accruals account adjustment, how I would use that? I do already have it for other purposes, but I would still have nowhere to take funds into it, so it would stay as suspense. What would be journal entries.
Ps I am very new in accounting so sorry is not explaining well
One thing you must remember is accountants/bookkeepers are allowed so many
mistakes it’s fun. The catch is the moment you realize there is an issue
you must be actively seeking the proper fix. In what I have read the actual
correct process to fix the issue is amend the years tax return that was
over paid and correctly state the current one. Good records and general
journal entry along with amended returns will make your life easier when
it’s flagged
That would be inline with your accountants request for a Journal Entry.
In a Journal you would list the various expense account and enter their amounts as debits. The total of those (400) would be enter as a credit and allocated to the Liability accrual account.
Not strictly true. Any payments made from your bank account to pay off the credit card balance would be allocated to the accrual account instead of being a funds transfer to the credit card.
So if the accrual account has a credit entry of 400 (which also reflects the credit card actual balance) and on Jan 2 2017 you made a bank account payment of 400 to pay off the credit card. The payment gets 1) allocated to the accrual account which will be a 400 debit, (so that has cleared the accrual account) and 2) deposited to the credit card.
Now the actual credit card balance is zero (paid off) and the Manager Credit Card account is also zero.
Yes if the amount is substantive and materially changes your accounts or tax obligations.
You wouldn’t correct tax returns for minor amounts as the overall impact is immaterial and balances out over the adjusting periods.
I done some research on UK practices and I must agree with @Brucanna. The key is substantial and material and in my case tax difference is less that £100 which is definitely not substantial in HMRC terms.
But please don’t take it for granted and research you countries practices and tax authority before doing such adjustments. Country I was born they probably would skin you for £1 error.
Your Option A - You are making this way to hard on yourself - its not proper accounting.
What Option A should be.
If your Manager credit card account had a ZERO closing balance at 31/12/2016 then your Manager credit card account must also have a ZERO starting balance at 1/1/2017. You CAN’T input a “starting balance” into your Manager credit card account between the two years.
Yes, your actual credit card statement has a balance of -400 as at 31/12/2016, so you resolve this difference by doing a Spend Money dated Jan1 for the transactions on the credit card statement. This Jan 1 Spend Money transaction, replaces the Spend Money transactions that should have been entered in 2016. The expenses are added to 2017 and now the Manager credit card account is in sync with the credit card statement and can be reconciled.
Your Option B appears to be okay. My preference would Option A as it mirrors what should have happened in 2016, but your accountant requested a journal so Option B falls into line with that request.
I think it clicked what you mean by spend from account, when I was doing option B.
Yes it would be easier that way and no need for second account, but it would hide adjustment in bottom of all transactions.
I do prefer Option B, because it is more transparent explaining what was done in journal entry, and I don’t think my accountants software will be able to do option A anyway.
Your accountant should not have to do option A or any other option. Unless your accountant is reproducing your bookkeeping, she or he should work with the outputs of Manager.
What do you mean? It is interesting you comment on that, so I am not sure which angle you taking on it.
I wish that he could use Manager only and spend time advising me rather that copy pasting numbers, but he wasn’t interested too much, because it can’t produce standard UK reports for him, therefore he needs to reenter same numbers into his software.
Missing is what he calls statutory reporting:
Statutory accounts must include:
a ‘balance sheet’, which shows the value of everything the company owns, owes and is owed on the last day of the financial year
a ‘profit and loss account’, which shows the company’s sales, running costs and the profit or loss it has made over the financial year
notes about the accounts
a director’s report (unless you’re a ‘micro-entity’)
His system does automatic calculation of corporate tax for him too
Also most of legacy systems in UK have ability to submit (PAYE) Payrol, Tax returns directly into HMRC (Tax Man)
#1 Is probably very close in Manager anyway, because it is missing only notes and directors report
If we had similar capability for Themes in reports, like invoices, transactions etc. with exposed variables for Balance Sheet, PL, etc. I could probably build missing reports myself.
Notes I guess could be achieved now by using some custom variables, but I am not sure.
#2 Not sure how that could be done
There is special VAT report for UK only, so maybe Corporate Tax calculator could be done too?
#3 Is a bit more complicated, but also could be achieved by using API (If necessary information could be exposed there). However it require to write application to do that.
p.s I did jeopardise all expenses naming to some antique standard, because on his system he can’t rename it and I didn’t want mistakes on matching and copying. We spend all meeting making jokes on “who is using FAX anymore?”.
Well, Manager is not tax software, so it isn’t going to calculate your taxes, because there are too many variables on how you report, what strategies you follow to minimize tax, etc. But tax computation software is typically a different program than accounting software. And Manager isn’t going to automatically submit anything to HMRC. But I have trouble believing there aren’t available tools for doing that using the outputs of various accounting packages. The key, of course, is to have your chart of accounts properly designed to match submission needs.
Your statutory requirements are met by Manager’s standard reports. (Notes are just a document explaining any significant aspects of the years’ account.)
What your accountant is asking, apparently, is for you to pay for all the input work you’ve done all year to be redone. I understand his putting your account balances into his tax software, but not recreating every transaction.
Yes you might be right, he is not recreating all transactions, just account balances. He still records all journal entries, to explain adjustments.
Copy pasting all account balances is also prone for human error, so I will have to recheck all numbers. After 2 previous accountants don’t trust them anymore and all of that just for getting auto generated reports.
Agree regards submissions to HMRC has to be 3rd party software, because it is bespoke for each country.
Custom reports would be major selling point for my accountant.
If we could record notes in manager for year it would be amazing, we probably can in folders, but how to combine all reports and documents into one.
Regards “It is not tax calculation software” you might be right, but VAT tax calculations report exist for UK, so it already does some of it. Maybe it could be just some kind of functionality to record these calculation, or ability to link to Document in folder for reference.
My point is exactly how you put it:
and to convince him to stop doing it and work with manager instead is just few little bits missing.
I didn’t read everything but I strongly oppose allowing bank and cash in journal entry. I have actually requested for it before but now I understand the workflow of Manager proper and wouldn’t want to see cash and bank accounts in journals.
The current settings allows users to create a cash summary report.
