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Post Info TOPIC: Reversal of Opening Accrual & Prepayment in Sage Line 50


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Reversal of Opening Accrual & Prepayment in Sage Line 50
 


confuseNeed some advice please.  I have an opening trial balance in Sage Line 50 which includes a figure for prepayments (£100 dr) and accruals (£3,500 cr).

I need to reverse these opening balances, but am confused, and don't want to input the wrong figures.

The accrual referes to accontancy fees and the prepayment relates to road tax.

To reverse the Accrual I have posted a journal which debits accruals (NC 2109) and credits accountancy fees (NC 7601)

To reverse the Prepayment I have posted a journal which credits prepayments (NC1103) and debits car tax NC 7302)

Is this right?? It's driving me mad!! Advice very welcome (please!)

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gbm


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Hi Suzanne,

Spot on.

If you have any doubts, why not try it in the dummy data and see what the results look like?


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Nick

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Hi Nick,

Many thanks for your reply. Can stop worrying about it now!

Best regards,

Suzanne

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Hi Suzanne

Agree with Nick in that what you have done is correct.

The reserved accrual re accoutancy will obviously be cancelled by the invoice when it is received in the current year.  I assume the business is a fair size, perhaps an audit if the accounts fee for one year is £3500 (though may be more than one year).  Either than or a lot of tidy up work is done by the accountant at the year end as £3500 seems very high for a simple accounts prep job.  Of course the accountant may maintain the books and the accrual is bookkeeping and accounts prep.

Re prepayments as you now have a Dr balance in car tax this is a cost in the current year in the P&L given the cost last year was prepaid.

MarkS

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Thanks Mark - that's very helpful!

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Hi Mark,

Further to Suzanne's original question, what happens when the actual accountants invoice comes in and is more than the original accrual ?
Sorry for the time span in this thread, but its the closest answer I have found to my query !
Many thanks
Lisa


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class71 wrote:

Hi Mark,

Further to Suzanne's original question, what happens when the actual accountants invoice comes in and is more than the original accrual ?
Sorry for the time span in this thread, but its the closest answer I have found to my query !
Many thanks
Lisa




I would leave the accrual to the accountant to sort when they do the year end accounts.  it shouldnt be wrong then.

But if the accrual is less than the invoice, still reverse your accrual against the invoice amount , dont adjust anything. This will leave a small debit balance which will then be added to the following years accrual.

This is the same for when the invoice is less except a small credit balance is created and the when the next accrual is done.  Basically it averages out over a number of years.

Hope that helps.

 



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Hi Lisa

Re your query where the actual invoice is more than the accrual then the additional cost is borne in the year the invoice is received.

Better to work with figures.

Say is the first year of business and you have accrued £1000 for accountancy fee.

Then in year one the journal is

Dr Accountancy £1000
Cr Accruals £1000

In year two the accrual is reversed to accountancy

Dr Accruals £1000
Cr Accountancy £1000

so you have a credit balance sitting in your accountancy expense in year two.

Say the actual invoice for year one (received in year two) is for £1200.  To incorporate the invoice you

Dr Accoutancy £1200
Cr Bank/Creditors £1200

So now you are sitting with £200 Dr in your accountancy P&L account for year two (before you make any adjustment for the accrual in year two). 

So between both years 1 and 2 you have recognised £1200 for year 1 accountancy fee split as £1000 year 1 and £200 year 2.  So the cost is correctly recognised over both years but just the split that is wrong.  In theory if you knew the year 1 accountancy fee before you prepared the accounts you would have accrued £1200 rather than £1000 so you wouldnt have an underaccrual carried forward in year 2 accounts of £200.

Hope the above makes sense.

Regards

MarkS

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MarkS wrote:
...
In theory if you knew the year 1 accountancy fee before you prepared the accounts you would have accrued £1200 .......

It puzzles me, that accountancy fees are accrued to a best estimate.

Things like telephone, heat and power etc, i can understand an estimated accrual but I would have thought that, in most cases, that the accountant preparing the accounts,  could prepare their bill, and work out exactly what the fee was going to be before the final accounts were drawn up, and could accrue the exact amount. Couldn't they?

Bill

 



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Hi Bill

May be that the accounts are prepared by the bookkeeper rather than the accountant and are a best guess of what the fee is and given not material the accountant may not bother to change to what there fee will be.

Or may be that there is additional work done over and above what was intended eg tax work, and rather than changing the orignal accrual the accountant has left as was originally.

When i prepare accounts in my office the accrual is a best estimate (usually based on previous years fee and what the likely costs are to be this year) but when the fee is issued (usually when the accounts are issued) there sometimes is additional costs that will result in a fee higher than the accrued amount but not worth all the hassle to change as it will sort itself out in the next year.

Regards

MarkS
Regards

MarkS

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gbm


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Hi Bill,

When I used to work in practice for other firms, accountancy provision was based on last years + 10% (this was the late 80's!). However, it used to be time driven then, and if WIP was high, this may be passed on (or not, depending upon the client).

However, when I do things now (for my own practice), the provision tends to agree to the amount invoiced. More often than not, the client knows in advance what they are going to pay anyway.

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confuse Hi, I am new to this forum and would appreciate some advice. Like SuzanneD i am also confused with which method to follow in the Reversal of Opening Accrual & Prepayment situation in Sage Line 50. My amounts I have to enter are Accruals : £3000 accountancy fees and £500 electricity and Prepayment: £100 car road tax for the next 6 months.

Do I set up a new journal for each accrual and prepayment before I do the reversing journal for each one? Also, I am not sure what to put for the date as these transactions are on the Opening Trial Balance  dated 01/01/2010 - do I date these transactions 01/01/2010 or should I make it 31/12/2009?

 

Hope someone can help - many thanks in advance

KathyC



-- Edited by Marple on Friday 7th of October 2011 09:27:22 PM

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Hi Kathy,

Have you just entered an Opening TB in Sage from year ending 31/12/09? Is this your first year using Sage? Not sure if the accruals and prepayments you mentioned have already been entered as part of the TB or have still to be entered?

Pauline

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Pauline



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Hi guys,

 

I think this is possibly the ICB level 2 computerised exam that Suzanne is doing.  I got mine in yesterday and I also have accruals and prepayments of the same amount and nature to reverse from the opening trial balance.  I am doing my exam on VT tansactions plus but should work out similar to sage.

 

Elizabeth



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hi Pauline, thanks for replying so promptly. I am totally confused with reversals and am doing the ICB level 2 Computerised exam - one of the questions being: I have entered the opening balances as of the 1st January 2010. These opening balances contain accruals of accountancy fees of £3000 Cr and Electricity £500 Cr for last year's charges and a Prepayment of £100 Dr for Road Tax for the next six months.

 

I have been asked to post journals to reverse these using the appropriate expense accounts as at the 1st January. I created a journal for the accruals and prepayment amounts above by entering all the details twice - once in the expense accounts and once in the accruals and prepayment account. I then ticked the reverse journals box and clicked save.  When doing a preview of the opening trial balance I noticed that nothing has changed from the previous opening trial balance, I would have thought the accrual and prepayment amounts would have been removed from the new opening trial balance.

 

Any idea as to where I have gone wrong? Any help would be greatly appreciated.

Many thanks

Kathy 

  



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Hello everyone,

Sorry to bring up an old thread again but could I possibly get some help on this.

This is for an exam so I will try and keep this to accounting theory.

I have input opening trial balance into VT transactions+ with opening prepayment and accrual. I then used the journal to reverse both of them.

Question is this - should my profit and loss account then show a profit of net amount?

Sorry if this is really basic but having difficulty getting my head around it.

No further payments are allocated to the expense account that the accrual was reversed to so when the month end adjustments are carried out for depreciation does the expense account jsut sit with a credit balance. It seems to be increasing the profit for the period.

Hope someone can help with this and it makes sense.

Elizabeth

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Hi guys,

Not sure I should be helping with exams really, but the general gist of reversing accruals and prepayments is that you do the exact opposite entries to those that have already been entered (i.e. that already exist from the TB) using the Journal function in the Nominal ledger.

Elizabeth, the reversal of your accrual will credit the expense account which will be cancelled out when you enter the invoice for whatever the accrual was later in the year.

Hope this points you in the right direction.

Pauline

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Pauline



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Thanks Pauline,

I think I have figured it out now.

I am using VT transactions. So when I reverse my accrual it is showing up immediately as an expense (credit balance) in profit & loss. This is resulting in a profit for the new period.

If invoice was received this wouldn't be a problem as debiting expense and crediting bank would eliminate the transaction from current period accounts as it's already been dealt with in previous years accounts.

Problem was no invoice received and accounts to be produced for month end of January.

But I think I was over thinking this. I think all I need to do is post the accrual again as it is still an accrual in the accounts.

Thanks for your help.

Elizabeth



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betty121 wrote:

Thanks Pauline,

I think I have figured it out now.

I am using VT transactions. So when I reverse my accrual it is showing up immediately as an expense (credit balance) in profit & loss. This is resulting in a profit for the new period.

If invoice was received this wouldn't be a problem as debiting expense and crediting bank would eliminate the transaction from current period accounts as it's already been dealt with in previous years accounts.

Problem was no invoice received and accounts to be produced for month end of January.

But I think I was over thinking this. I think all I need to do is post the accrual again as it is still an accrual in the accounts.

Thanks for your help.

Elizabeth


Hi, hope you don't mind me asking but when you reposted your accruals to enable an accurate P&L a/c did you also add on another £month for electricity to cover the expense for the Jan month's trading. Also did reduce the prepayment for road tax by a month then repost? As far as I understand, even though the question doesn't ask you to do these adjustments (only a ref to prepayment of rent), to draw up accurate P&L/Bal sheet accruals and prepayments should be calculated, whether for monthly reports or end of year.....not sure how far we are supposed to use our initiative in a level 2 exam???? Many Thanks

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Hi there,

I wouldn't do anything that the exam hasn't asked you to do If this just means reversing the opening accruals/prepayments then this is what you should do, even if it means you have a credit balance on an expense account.

Pauline

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c


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Thanks for the advice! Difficult to know how far to take things as if it was a 'real-life situation' I would do things differently.

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Of course you would do things differently in real life, but when do exams ever reflect real life situations? lol   biggrin

Pauline



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