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Treatment of Accruals

  • Student
  • 6 posts
  • # 115804

Hello Everyone,

I would really appreciate, if someone puts light on it please. I am confused about how to treat Accruals, which were mistakenly created. 

 

on 31st January, I passed an Accrual for Water rates for £1000 (Estimate) and then on 1st February, I reversed the accruals leaving a credit balance in the Water Expense account in sage software for the month of February.

On 15th of Febraury, I came to know that, I have mistakenly created the accruals and no such invoice for water rates is expected. I produce monthly management accounts. Now the problem is previous month management accounts, I cannot adjust. What should I do in order to remove this credit balance in the water expense account?

 

Please help!!!

 

Regards,

AK

  • Fellow PM.Dip
  • Practice Licence
  • 21 posts
  • # 115806

Hi

The accounts for January show a debit of £1000. In February you reversed the journal so the accounts show a credit of £1000. You do not now need to do anything as overall there is nothing in the accounts for water. If you were to look at the accounts for the two months, there wouldn't be anything in them for water. 

Any help?

Regards

Hazel

  • Student
  • 6 posts
  • # 115808

Thanks for your reply. 

Yes, you are absolutely right. But as I produce monthly management accounts.  when I prepare february P&L statement, 1000 credit appear in water account. Thats odd. How to deal with this?

  • Fellow
  • Practice Licence
  • 28 posts
  • # 115809

Hi

If you look at the journals you entered for January & February originally & then post the opposite for both month now this will correct the individual months for you 

Good luck

Lisa

  • Affiliate
  • 7 posts
  • # 116822

Hanan AK said:

Thanks for your reply. 

Yes, you are absolutely right. But as I produce monthly management accounts.  when I prepare february P&L statement, 1000 credit appear in water account. Thats odd. How to deal with this?


 Hi

Can I ask, is this for a client or is this studying stuff?

 

If the latter then I agree with Sapphire, you will have to go into Jan and post a CR to Water and DR to accruals, bringing the charge to zero for the month.  In Feb you will have to do the opposite.

If the former (this is a LIVE client's accounts), then I would agree with HRM.  You cannot do anything as presumably the January Mangt accounts have already been reported - therefore you cannnot go back and restate management accounts just because you made a mistake, January is over and you cannot do anything.  With management accounts there should always be some commentary i.e in Jan it would be 'bill expected', and in Feb it would be 'bill no longer forthcoming' which would explain your variances.  YTD the value would be zero, as Hazel says.

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