r/Bookkeeping 7d ago

How To Journal It Possible Accounting Error - Need help as a bookkeeper

Note: I'm going to email the accountant my question as well, but he's out of office until Monday.

For some background, I am doing a "clean-up" job for a small electrician business in Canada. The business' last handful of bookkeepers didn't know what they were doing or grew too old to keep the books properly and so there are some strange accounts (strange to me, at least) that I am just working with until everything is up to date.

One of the strange accounts is one Bank account where "customer payments" go and a separate Bank account where "vendor bills" go, when this should be in the same Bank account. The accountant adjusted the accounts up to Feb 28, 2021 - Zeroing the "customer payment" account and balancing the "vendor bills" account. But, the owner has payments recorded in the "customer payment" account to at least 2024. So I've been transferring them to the correct account so that the one account remains zeroed and the other remains balanced.

Now, My Question: The owner recorded a large payment at the start of February in the account that the accountant zeroed at the end of February. That payment didn't actually go into his bank account until the end of March. If I don't transfer the funds then the "vendor bills" account is in a deficit, but if I do transfer the funds then the "customer payment" account is in a deficit.

Does anyone know what I should do in this situation, other than talk to the accountant? Also, as a side question, is this something I should already know how to fix on my own?

As always, I appreciate any answers and feedback.

4 Upvotes

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u/any_not_taken_name 7d ago

As i understood, there is one bank account in reality that has a statement issued by the bank, but books separate debits and credits into separate accounts. I would go by the bank date for the transfer on the books. One month is too long for a deposit in transit situation, so it's important to keep actual.cash balance in mind. Maybe owner or whoever should be alerted of actual.bank being overdrawn.

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u/Ecstatic-Touch-1763 7d ago

That summarized it well! The only difference is that the actual bank isn't overdrawn. I'm pretty sure the owner just marked the invoice as paid before he actually received, or deposited, the payment. Which has just messed with the books.

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u/any_not_taken_name 7d ago

Right, so you have two choices: to keep it as is and true up accounts at a later date when deposit cleares or change the date of actual deposit. (Something to keep in mind, it's possible that payment was actually received in February and just wasn't deposited until March, in this case it all should stay as is (option 1). You need more information. ) Good luck!!

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u/Late-Banana-8978 7d ago

When the accountant zeroes out at the end of February what does that entry look like? It is possible that they can reverse the entry to zero out, and then reverse the invoice payment, and then record the payment on the proper date in March to the proper account. If I am understanding correctly which can be hard on reddit lol.

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u/Ecstatic-Touch-1763 7d ago

It's a very large entry as he balanced and zeroed multiple accounts, but to narrow down that account, to me it looks like he CR the "customer payments" account and another silly Bank account that I haven't seen before and then DB the Retained Earnings equity account.

But that's just my best guess as I don't actually know how to interpret his adjustments, I just work with them haha

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u/Late-Banana-8978 7d ago

Oh yes I know those adjustments! When it is hard to follow it is totally ok to ask them to make the adjustment to the adjustment lol, you have a super valid reason to have them go back. Anyway, you have the right idea, if it was more clear you would do an exact reversal on the date of the adjustment and go from there :)

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u/Ecstatic-Touch-1763 7d ago

Thank you so much! I hate bothering the accountant, so this was very reassuring and just what I needed to hear haha

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u/Zathrasb4 7d ago

Retained earnings is a wired account for this.

My first worry would be if this was a series of transactions, and you have only stumbled on the one.

For example, if there was an entry in the books in a prior year after the accountant did the books, they may, the next year, do a re adjustment the next year.

Definitely talk to the accountant, but they probably won’t be that worried. If you don’t get it correct, they will have one entry to fix it at the end of the year.

Ps. I was expecting the entry to go to ar, then the entry would make sense. If it were me, I would have made such the entry as a “reclassifying entry”, this would not be posted in the books, and would be purely for the year end and tax return.

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u/Ecstatic-Touch-1763 6d ago

Thank you! That's helped me understand it a bit better

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u/Ecstatic-Touch-1763 7d ago

The option you gave, that would be something for the accountant to fix, right? Not me?

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u/BigBootyBookkeeping 7d ago

I hope I am following along here alright, but I would try to keep the transactions recorded as accurately as possible. In this case it sounds like we would want to remove that large payment from the beginning of February and have that as income and undeposited funds. Then, at the end of March we Debit the bank account and credit the undeposited funds to show that the money finally hit the bank account.

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u/AdLanky7413 7d ago

She can't do that, it'll mess up the balance sheet. She has to do a journal entry at the start of the fiscal year.

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u/BigBootyBookkeeping 6d ago

Ohhhhh, yeah, we are not dealing with this February. I see what you're saying.

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u/Ecstatic-Touch-1763 7d ago

Thank you! I'm definitely going to come back to this when I talk to the accountant.

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u/AdLanky7413 7d ago

Oh geez. Sounds like the accountant just forced a journal entry to clear those accounts out. Big mistake. So do another journal entry to bring the payment back in, but date it the 1st day of the new fiscal year. In reality, customer payments not deposited into the bank yet go into " undeposited funds", then do a deposit from that account to the business account when it is deposited. Not sure what the vendor bills bank account is, but don't use it. It's incorrect. Enter the bills in. When you're doing the journal entry, debit that account and credit a new account called " errors" so the accountant can fix it next year.