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Net Salary Account at year end.

  • Member PM.Dip
  • 29 posts
  • # 55027

I have recently taken on the books of a small Ltd. Co. and have discovered that the net pay for the last week of the company's last financial year was not paid out until the current financial year. As the balance in the account was not debited out prior to running year end and re-credited at the beginning of the current year the books now show a debit balance equal to the e.o.y. balance. What is the best way to rectify this?

  • Member PM.Dip
  • Practice Licence
  • 58 posts
  • # 55034

I hope I am understanding you correctly, but in my experience there is often a credit balance in net wages at the year end. There should be of course, if wages are paid a week in arrears for instance.

If for example the year end is December and December's wages were paid on (say) 5 January then there would be a balance on the net wages account until the wages were paid. 

As part of the year end process I would reconcile the net wages account as you would any other balance sheet account.  ie Balance on account = £5000.00 wich is made up of Decembers wages outstanding at year end paid 5 January.

Applogies if I've misunderstood.

  • Member PM.Dip
  • 29 posts
  • # 55070

Anne, thanks for your reply, and yes you do have it correct, up to a point.  The problem is, when I run a trial balance for the beginning of the current year I would expect to see the credit balance in the net salary account but it isn't!  This results in a perpetual debit balance equating to the figure paid out for the week in question. 

  • 180 posts
  • # 55073

I am asuming that the software you use has closed the year end and you cannot make any prior year adjustments?

My view is that when the accountants have taken a look (presuming that you don't prepare the final accounts) they will adjust the balances, providing you with an opening trial balance so that the rogue balance is negated.

Provided then that you properly adjust at the end and start of each period (month/quarter/year end) by way of journals making the relevant accruals where necessary you will not have this problem again.

Geoff Smith
www.accountslegal.co.uk

  • Member PM.Dip
  • Practice Licence
  • 58 posts
  • # 55074

This does seem strange it's difficult to understand without seeing the transaction history so I'm just guessing here so excuse me if I'm stating the obvious:-

  • Is the Trial balance report inclusive of year end closing balances ie 'to date' rather than one month only. 
  • Is the net wages a balance sheet account, could it be set up as a P&L account and automatically cleared at year end ?
  • Was the corresponding journal for the payroll transactions creating the credit balance posted (or however you post the payroll)
  • Has the bank payment actually been posted correctly
  • Out of interest which software are you using ?

  • Member PM.Dip
  • 29 posts
  • # 55076

The software is Sage
The Trial Balance option used is 'Bought Forward'
The credit value for Week 52 was posted on 31/03/10
The bank payments were posted on 01/04/10
There has been a JD posted on 31/03/10 reference 'Opening Balance Adjustment' that does not equal the value for week 52, I cannot find an equivalent JC to the same value?!?!?
Selecting 'Prior Year' transactions shows transactions back to 31/03/07 - up to 2010 the year end had not been done!
 
It just seems the deeper I dig the more anomallies I find.  I really thing I must tell my client to instruct their accountants to provide the correct information and instruction here. 

  • Member PM.Dip
  • Practice Licence
  • 58 posts
  • # 55082

Yes I think you should contact the accoutants for details of their year end Journal.  It is likely that there isn't a corresponding credit entry for this amount as it will probably all be rolled up into a list of final adjustments that will result in the closing balance (in this case zero for net wages).  Maybe you'll find they have included iti in some other balance sheet account. - sundry creditors perhaps. I think they have probably posted an adjustment and then the wages have been paid effectively resulting in two debit entries being made.  I think you will need to find out the accountant's reasoning and where they suggest you post the correction.  

Hope I'm not 'barking up the wrong tree', do post here if you find the answer - good luck

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