Correction Accounts Payable balances on Quickbooks and general

[mango]

Hi there,

Im a bookkeeper and i taken over from someone... i discovered that the "accounts payable" is hugely overstated and out by more than a million to what we actually owe. I think things were captured incorrectly
over the past 6 years so this Liability is still on our balance sheet...

I have recon all the suppliers and we actually owe R400 000 roughly so i need to adjust the "accounts payable" by R600 000.

When i did the recon i adjusted the suppliers balances to a "account payable control account". So the R600 000 odd balance is there now.

Please would someone tell me the accounting transaction to legally and correctly fixing this to reflect the correct accounts payable. I have no idea where to journal this to and what the bigger picture will be.

please note im new to bookkeeping and have limited experience...

Regards

[Dave A]

It is hard to advise what journal you need to post without knowing where the error came from in the first place.

The accounts payable account should at all times be equal to the total value of the A/P Ageing Summary report.

All transactions in the Accounts payable control account should be linked to a Supplier account. Find the transaction(s) that are not linked to a Supplier account.

[Mark Atkinson]

So if we take a step back and look at this separately from Quickbooks:

The transaction that would most likely have been recorded to raise the creditor in previous years would be:

Dr Expense
Cr Creditor

If we assume that the transaction was raised in error and picked up immediately, you would have raised the following to reverse:

Dr Liability
Cr Expense

Resulting in a nil adjustment.

As I'm guessing you're in succeeding periods now, you would (from an accounting perspective) raise the following entry:

Dr Liability
Cr Opening Retained Earnings (effectively reducing prior year's expenses and increasing profits)

I'm not sure of the implications of Quickbooks on the scenario, but from a purely accounting/financial statement point of view, that's how we'd do it.

I imagine on the supplier function of Quickbooks you may be able to raise debit notes to effectively adjust the correct suppliers. (As Dave mentioned, find the invoices that were raised in error in the first place)

[mango]

Hi there,

I realised i could have made this more clear..

What happened is the previous bookkeeper captured quotes, pro formas and invoices on the suppliers accounts... now after 5 years she run and im stuck with this. I have made adjustments from the suppliers accounts to the "control accounts payable" account to have the difference there. This means my aged payables are correct and match the statements from the various suppliers.

The thing is now i sit with that "control accounts payable" account which is roughhly R 600 000.

Its a Liability account, so if i debit that which account can i credit this to... i dont want to credit sales (as we will have a huge implication on tax paid on sales).

Please tell me if theres a way to get this to dissapear from our liabilities without "creating profits" in our books. This is going back just over 5 years.

Regards

[Dave A]

So the previous bookkeeper basically captured the same bill more than once on occasion?

If so, surely this resulted in an overstatement of expenses (or stock) at the time?
(As well as the overstatement of account payables).

[Andromeda]

Hi there,

I realised i could have made this more clear..

What happened is the previous bookkeeper captured quotes, pro formas and invoices on the suppliers accounts... now after 5 years she run and im stuck with this. I have made adjustments from the suppliers accounts to the "control accounts payable" account to have the difference there. This means my aged payables are correct and match the statements from the various suppliers.

The thing is now i sit with that "control accounts payable" account which is roughhly R 600 000.

Its a Liability account, so if i debit that which account can i credit this to... i dont want to credit sales (as we will have a huge implication on tax paid on sales).

Please tell me if theres a way to get this to dissapear from our liabilities without "creating profits" in our books. This is going back just over 5 years.

Regards

Hi Mango, the problem is that the error has in the past overstated the cost of sales or expenses, and therefore understated profit (and of course tax). Correcting it properly will "create" profits.

An alternative correction is to credit retained income, and this might be the more correct method depending on how material this error is to your entity. There is a way to disclose the error and it's consequences in the financial statements. Ultimately your problem is income tax.