How to reverse out opening Accounts Payable balances
This article covers how to reverse out opening Accounts Payable balances for organisations in their first year of using ExpensePlus.
This article is relevant for organisations that prepare accounts on an accruals basis.
In this article:
What is an Accounts Payable accrual?
How to enter opening Accounts Payable balances
How to record a bank transaction as an opening Accounts Payable balance reversal
How to make an adjustment where the amount paid out is different from the amount accrued
What is an Accounts Payable accrual?
An Accounts Payable accrual is a type of correcting adjustment.
If you create accounts on an accruals basis, then at the end of the previous financial year, you will need to accrue for expenditure that relates to that financial year but was not paid out until the following financial year.
At year end, these will be shown as part of the 'creditors' on your balance sheet.
Typical examples of Accounts Payable accruals include:
- HMRC and pension payments relating to the last month of your financial year that were not paid until the next month; and
- independent examination fees.
See this article to learn more about how to create correcting adjustments on ExpensePlus.
Only transactions of material value need to be accrued for in your prior year accounts. Typically, this includes items with a value above (for example) £500 that 'land in the wrong financial year' on your bank statement. If you are unsure, you should ask your independent examiner about this.
How to enter opening Accounts Payable balances
When setting up ExpensePlus, you will need to set up your opening fund balances.
As part of setting up your opening balances, you will be asked to allocate your opening Accounts Payable balance to the different funds this relates to.
Don't worry if you don't have these figures just yet from your prior year - you can set up your opening balances later.
In the meantime, you can still record transactions that have been or will be accrued at year end and that are showing on your current financial year bank statements that you have uploaded - keep reading to find out how to do this.
How to record a bank transaction as an opening Accounts Payable balance reversal
To find out how to upload and reconcile bank transactions, watch the Bank Reconciliation Module Overview video.
When a bank transaction that is part of your opening Accounts Payable balance appears in your bank account, on the match transactions screen you need to record it in the following way to reverse the accrual:
- Select the transaction on the left-hand table
- Click the '+' button to the right of the transaction
- Select the 'Opening Accounts Payable Reversal' option and enter the transaction details
The fund(s) you select should reflect the fund(s) you recorded the accrual against in your prior financial year accounts.
If it relates to multiple funds, click 'enter a split transaction' to allocate the amount against multiple funds.
How to make an adjustment where the amount paid out is different from the amount accrued
If your prior year accounts are not closed yet
If you are yet to close your prior year accounts and you realise that you've incorrectly accrued for expenditure, then you can correct for this in your prior year's accounts with whichever system you are using to create your accounts.
If your prior year accounts are closed
If your prior year accounts are already closed, then you can make adjustments in ExpensePlus to account for the difference. How you do this within ExpensePlus depends on the scenario. Follow the steps for the relevant scenario below:
a) If you didn't accrue for expenditure that should have been accrued for
You should simply record this as an expenditure when bank matching transactions on the match transactions screen.
Click on the bank transaction and in the pop-up that appears, select a transaction type from the drop-down menu under the sub-heading 'Expenditure'.
b) If you wrongly accrued for expenditure OR the payment owed does not need to be paid
Then you will need to reverse the accrual within the adjustments screen.
To do this, click the double arrow button to the right of the 'Unreversed Opening Balance' line.
In the pop-up that appears, enter the amount you want to reverse out, the relevant fund and category, and the description of the accrual concerned.
c) If you accrued for expenditure, but the amount you paid was less than the amount accrued
You should record the payment as an opening Accounts Payable reversal when bank matching transactions on the match transactions screen (see the steps above).
Then account for the difference within the adjustments screen:
- Click the double arrow button to the right of the 'Unreversed Opening Balance' line.
- In the pop-up that appears, enter as a positive number the amount that was the difference between the accrued income amount and the actual income payment
d) If you accrued for expenditure, but the amount paid was more than the amount accrued
You should split the bank transaction into two 'paid out' transactions - the amount accrued and the difference. Then, on the match transactions screen:
- for the amount accrued, record the payment as an opening Accounts Payable reversal (see the steps above)
- and record the difference, which was more than the amount accrued, as expenditure (same as in Scenario a).
To better understand the Bank Reconciliation module, please view the module overview video here.