Correct These Bookkeeping Entries

Correct Bookkeeping Entries

Correct Bookkeeping Entries

Nigel mistakenly recorded a £500 vet fee for his daughter's horse as an office expense. What is the correct accounting entry for this transaction?

For a week in June 2009, work was billed as follows:

Net: £4000
VAT: £700
Gross: £4700

The gross and net amounts were accurately posted to the sales and general ledgers. However, the VAT was not accounted for. How should this VAT amount be correctly entered?

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Aug 09, 2023
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starstarstarstarstar 		Fixing Bookkeeping Ledger Errors
by: BB

To correct Nigel's error, the vet fees should be removed from the office expenses. The correct entry would be:

Debit (decrease) Office Expenses: £500
Credit (increase) Personal Drawings or Owner's Equity (since it's a personal expense): £500
If the VAT hasn't been accounted for in the ledgers, the VAT account should be updated to reflect the £700 VAT charged. The correct entry would be:

Debit (increase) Accounts Receivable or Sales: £700
Credit (increase) VAT Liability: £700

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Correcting Prior Year Entry After Books Closed

Correcting Prior Year Entry

Correcting Prior Year Entry

Yearly escrow fees for a rental condo are booked into a current asset acct. At year end the actual taxes paid from the escrow acct are reclassed to an expense acct - Property Taxes. In prior year we failed to reclass the taxes paid to the expense acct.

Our accounting software will not allow us to go back into a prior year once the year has been closed. Is it possible to correct the entry in the next year (it is still open on our books) using a suspense acct or something?

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Aug 09, 2023
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starstarstarstarstar 		Correcting Past Year Bookkeeping Entry
by: BB

Yes, you can correct the entry from a prior year in the current year without reopening the closed year. The most common method to do this is by using a journal entry that affects your opening balances or a suspense account, then correcting it in the same year.

Here's how you can handle this:

Debit (decrease) your Current Asset account for the escrow fees.

Credit (increase) a Suspense account or an Opening Balance Equity account for the same amount. This action essentially acknowledges the error from the previous year.

Immediately make a second journal entry to correct it within the same year (2010). Debit (decrease) the Suspense account or Opening Balance Equity account.

Credit (increase) the Property Taxes expense account. This action effectively moves the taxes paid from the asset account to the appropriate expense account for current year.

By doing this, you're acknowledging the error and immediately correcting it within the same accounting period. Always ensure you maintain detailed notes on such adjustments for clarity and for any potential audits or reviews.
Sep 06, 2011
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starstarstarstarstar 		Posted The Adjusting Entry
by: Stephanie Johnson

Hello Stephanie,

I did exactly what you said in your response to my last e-mail yesterday after I sent my e-mail. I just needed time to think it through and once I did, I was doing exactly what you said in you last response. It worked perfectly and everything is back to being in balance and in the proper accounts. Thank you for your help, your site is awesome!
Sep 01, 2011
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starstarstarstarstar 		How To Post Adjusting Entry
by: Stephanie

Hello,

The original entry that should have been made to the property taxes would have been to credit the escrow liability account and to debit the property expense account which would have reduced the net income for the year. The net income flows to the balance sheet at year end through the retained earnings equity account.

Therefore, your entry at 12/31/10 would be to credit the escrow liability account and to debit the prior year adjustments equity account. This way the escrow account will show the correct balance, the current year property taxes won't be effected, and the equity account will now show the correct balance as well.

I hope that helps to explain! :)

Aug 26, 2011
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starstarstarstarstar 		How Do I Post the Entry
by:

Thank you for your response to my question regarding correcting prior year entries after closing the year on Peachtree. I am still not sure how to do the entry. Your suggestion to create a Prior Year Adjustments Equity account
sounds good but I still am not sure how to do the entry so that it does not affect the bottom line. Can you give me the actual entry (i.e. the
debit/credit) and tell me how it will affect the bottom line for 2010?

My goal is to get the escrow fee balance on the balance sheet to tie to the balance at 12-31-10 with the Mortgage company without affecting the actual property taxes paid in 2010, as that number is currently correct. The expense for 2010 is correct the asset acct which should only reflect the balance in the escrow acct is not because of our error in 2009 of not re-classing the taxes paid. We should have re-classed the actual taxes paid in 2009 to the property tax expense acct. I do not want to adversely affect
either the asset account or the expense acct. Is that possible being we are crossing over 2 fiscal years one of which cannot be opened?

I hope you can give me further assistance.

Aug 26, 2011
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starstarstarstar 		Prior Year Adjustments
by:

I believe you should be able to make an adjusting entry at 12/31/10 to reduce the asset account to it's correct year end balance by offsetting against a "Prior Year Adjustments" Equity Account.

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Correction Procedure Bookkeeping Question

Correction Procedure

Correction Procedure

What are the correct accounts for remitting EI, CPP and Tax? Employees EI is $49.13, Employers EI portion is $68.78. Employees CPP is $62.78, same for Employers portion. Tax is $40.00. Are there both liability accounts and expense accounts that should be posted to?

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Aug 09, 2023
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starstarstarstarstar 		Employee Deductions Accounting
by: BB

When remitting Employment Insurance (EI), Canada Pension Plan (CPP), and taxes, both liability and expense accounts are involved:

Employment Insurance (EI):

Expense Account: This is where you would record the total EI expense, which includes both the employee and employer portions. In this case, the total EI expense is $49.13 (employee's) + $68.78 (employer's) = $117.91.

Liability Account: When you deduct the EI from the employee's wages, you owe this amount to the government. This is recorded as a liability until you remit it. The liability here is the employee's portion of $49.13.

Canada Pension Plan (CPP):

Expense Account: Record the total CPP expense, which includes both portions. Here, the total is $62.78 (employee's) + $62.78 (employer's) = $125.56.

Liability Account: The employee's deduction for CPP is a liability of $62.78 until you remit it.
Taxes:

Liability Account: When you withhold tax from an employee's wages, this is recorded as a liability of $40.00 until you send it to the government.

There isn't a separate expense account for the tax as it's an amount taken from the employee's wage and doesn't represent an expense to the employer.

In summary, you'll be posting to expense accounts for the combined total of EI and CPP that the company is responsible for (both employee's and employer's shares). The amounts taken from the employee's wages (EI, CPP, and tax) are posted to liability accounts until remitted to the government.

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