Reports, (the heart of darkness)

DaveC49 davidcousens at bigpond.com
Thu Dec 8 21:06:15 EST 2016


John,

The adjustmnet at the end of year is not to A/R but t oyour Income. When you
raise an invoice the transaction is (ignoring any VAT/GST/

A/R                     Debit       3000
Income(Revenue)                           Credit    3000

i.e. You have recorded  the income at the time of posting the invoice not
the time you receive the cash

If you have not received this income at the end of the tax year your income
reported for tax purposes needs to be adjusted down in the current year by
that amount and adjusted up in thefollowing year. I would be inclined to use
an equity account for recording the adjustment to income. One way to do this
transparently would be to have a sub account of your top level income
account along with a sub account of the toplevel income which is the target 
of the secondsplit in the invoice transaction above.E.G

Income:                                                    (top level
placeholeraccount)
Income:Consulting                                     ( accoint you record
income from your invoices)
Income:AdjustmentAccrualtoCash                ( account for recording EoY
accrual to cash adjustments)

Equity:AdjustmentsAccrualToCash                 (accountfor recording the
second ssplit of the adjustment)

The end of year adjustmentthen becomes ( assuming just the above invoice was
outstanding at EoY) 

Income:AdjustmentAccrualtoCash                Debit       3000
Equity:AdjustmentsAccrualToCash                                    Credit
3000

Your Income placeholder wouldthen record your taxable income. You would
thenclose your books for the year, transferring your income andexpenses to
something like an Equity:RetainedEarnings account ( see the guide for
details of closing  books at EoY which would have as its balance your
taxable income forthe yearjust  finishing). Your Income and Expense accounts
should then have 0 balances for the new financil year and you would then
make the following transaction to resore the adjustment in the new year:

Equity:AdjustmentsccrualToCash            Debit   3000
Income:AdjustmentAccrualtoCash                                 Credit 3000

The Equity:AdjustmentsccrualToCash  balance should then be 0 after
completing the adjustments and the Income account will have a staring
balance as abovefor the new year.

If you have VAT/GST taxes in your jurisdiction you would also need to make
similar correspondig adjustments to the VAT liability accounts.

Note you may also need to adjust your expense accounts for any A/P balances
which are recorded but you have not paid at the EoY if you use the business
vendor system for recording payments to suppliers.

Anything above is generic and your local tax rules may require a different
treatment. If you are in doubt consult an accountant.

David Cousens



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