Starting balance Equity is negative

When moving to manager from our old system, the Balance Sheet on day 1 shows a negative Starting Balance Equity.

There were a number of cheques written in the previous FY (not managed by Manager) which cleared the bank during the first FY managed by Manager.

Eg, the FY starts 1 June 2015 and there is a cheque input to Manager dated 28 May 2015 which cleared on 3 June 2015.

Our accounts are cash basis.

How do I initialize this properly? Something like recording the cheques as a liability at the start of the FY when setting starting balances? How would I do that? Where would I set the initial balances for that? (or do I input the cheque expense transactions differently?)

Thanks

I’m not sure I completely understand the situation you described. But let me make a couple of general points that should help clear things up:

  • Cheques written in a previous year should belong to the previous accounting system in a cash basis set of books. (I’m assuming they are cheques you wrote, not incoming cheques.) So your starting balance in the bank account should reflect the balance of the account as per the register, not the cleared balance in the bank. This is because under cash accounting, the cheque is considered to have been written when written, not when cleared. That money was not available to you as an asset on your start date.

  • You might think you could set the starting balance as per the bank’s cleared balance, enter the cheques with their pre-start-date transaction dates, show them as pending, then modify them to cleared status when they show up in the bank statement. But Manager will ignore transactions prior to the start date except for invoices, which are used to set Accounts receivable and Accounts payable balances through customer and supplier subaccounts, respectively.

Hi,

Thanks, that helps explain things. Yes, I’m talking about cheques I wrote.

The FY start is June 1st, so I input cheques (“Spend Money”) in May and marked the cleared date in June when they cleared. I guess I can’t do that.

I also input the starting bank balance as the actual balance on June 1st. (Seemed obvious to me).

So to fix the negative equity balance I should reduce the starting bank balance by the total amount of cheques that were
a) written “last year” AND
b) cleared “this year”

Correct?

Danny

If I understand your situation correctly, yes. This is necessary because you do not have the ability when switching accounting systems to bridge pending transactions. That capability exists only when all aspects of the transaction are fully encompassed by Manager.

I’m still struggling with fixing the negative starting balance equity… When switching to Manager, if I reduce the starting bank balance by the amount of the un-cleared cheques, won’t the bank balance shown in Manager not match the real bank balance from that point onwards? ie, Manager will never show the correct bank balance…

Or is that discrepancy only a temporary thing and not to worry about it? ie, when all of the “old” cheques clear the Manager bank balance and actual bank balance will converge…

There are really two issues involved here, starting balance equity and cheque status.

You should have no Starting balance equity at all. That is a sign that you had not properly indicated starting balances. When Assets minus Liabilities does not equal Equity, Manager forces the books to balance by putting the difference into Starting balance equity. If the books had balanced on your start date, that account would not be present. It will vanish when your starting position is corrected.

The cheques written under the previous accounting system may be one of the things contributing to Starting balance equity. Based on what you say, they are likely the only things in your situation.

No, not if I understand your situation correctly. Manager’s ability to track Cleared vs. Pending status is a convenience that provides additional visibility on withdrawals and deposits. But it isn’t strictly necessary. In fact, it didn’t exist at all until November 2015. So, as I told you previously, “your starting balance in the bank account should reflect the balance of the account as per the register, not the cleared balance in the bank.” To clarify, I was referring to your chequebook register. And at the time you would have entered your starting balances (had you been doing this in real time), you would have had no choice but to do it that way.

If all your other equity entries were correct, there will be no Starting balance equity. It sounds like you got that far. It is technically true that a day-by-day comparison of cleared bank balance to Manager’s bank balance might show disagreement for the first few days after the start date. But Manager would have no knowledge of that. As far as the program is concerned, those pre-start-date cheques were already cleared. Once the cheques have all cleared, Manager’s cleared balance will match the bank’s cleared balance.

Since you say all this happened back in 2015, that temporary mismatch in records is ancient history. Such mismatches occur frequently in my own records entered before the cleared/pending feature was introduced. Now they no longer do.