Correct accrual date for bank fees expense

[7specialgems]

MyCo's bank has issued its monthly fees summary by post.

The correspondence is not explicitly dated.

The charges relate to the period 12th November to 11th December.

The statement specifies that the debit will be made on 12th January 2015.

I understand expenses are logged on an accruals basis however what is the "correct" date to record?

I can't decide between the start date of the period, end date of the period or date of receipt of the statement via post?

Edit: In process of changing accountant hence thought I would seek the wisdom of crowds here instead.

[malvolio]

MyCo's bank has issued its monthly fees summary by post.

The correspondence is not explicitly dated.

The charges relate to the period 12th November to 11th December.

The statement specifies that the debit will be made on 12th January 2015.

I understand expenses are logged on an accruals basis however what is the "correct" date to record?

I can't decide between the start date of the period, end date of the period or date of receipt of the statement via post?

Edit: In process of changing accountant hence thought I would seek the wisdom of crowds here instead.

I use the date it appears on the bank statement. Why does it matter? There's no VAT involvement, it's a simple business cost.

[jamesbrown]

Agree with Mal, ignore the letter and wait until it actually hits your account/statement.

[TheCyclingProgrammer]

I disagree with the above to an extent. If you've been recording all expenses on an accruals basis, then you should be consistent. When I paid my previous accountant to do my annual costs, the expense was always recorded under the year for which he was preparing accounts for, not the date he invoiced me.

I wouldn't have thought it matters whether you choose the start of end date of the period as long as you are consistent. I would use the end date.

That said I can't think of anything bad that can happen if you handle the expense on a cash basis so it's up to you and to an extent how your own accountant prefers to handle these things.

[malvolio]

I stick to Cash Accounting because using Accruals means potentially you get lost in a fog of corrective journals and they are mainly of value to account for either unpaid or un-raised invoices (aka Debts and Commitments) across monthly accounting periods anyway. Mostly our businesses aren't so complex as to need that level of detail.

[Craig at Nixon Williams]

Technically an expense should be accounted for in the period that it related to, irrespective of when the payment was actually taken. If it is a bank charge for a very small amount, then in reality this isn’t going to make too much difference.

If you are in the process of changing accountants and you have a November or December year-end, then the old accountants should provide a schedule of accruals and prepayments to the new accountant so they will know where they stand with it.

[7specialgems]

Why does it matter?.

I had my attention drawn to this resource, which specifies that cash basis accounting is unacceptable for a Ltd.

Given the role in of deducting expenses in calculating net profit, I gathered that it naturally followed that expenses would therefore need to be logged on an accrual basis, hence the concern.

Technically an expense should be accounted for in the period that it related to, irrespective of when the payment was actually taken..

This advice would appear to be consistent with the above and I would imagine that getting it wrong would result in an incorrect statement of net profit for the period (albeit it in the case of bank fees, small).

[malvolio]

I had my attention drawn to this resource, which specifies that cash basis accounting is unacceptable for a Ltd.

Given the role in of deducting expenses in calculating net profit, I gathered that it naturally followed that expenses would therefore need to be logged on an accrual basis, hence the concern.



This advice would appear to be consistent with the above and I would imagine that getting it wrong would result in an incorrect statement of net profit for the period (albeit it in the case of bank fees, small).

Well yes, that is true but for most of us the only point at which a profit has to be known precisely is at year end, so you can account for CT and available retained profits. Ergo the accounting period is a year long, and you should carry over o/s debts and commitments at that point: in other words we are using accrual accounting over the course of the year.

During the accounting period, unless you have a particular reason to manage taxation/VAT offsets and similar stuff - which I suggest 99% of us don't - then cash accounting is merely common sense.

If you're taking out dividends during the year in the expectation of having sufficient profit at year end, then you're doing it wrong but as long as you are keeping careful track of your overall balances you can get away with it.

[7specialgems]

Ergo the accounting period is a year long, and you should carry over o/s debts and commitments at that point: in other words we are using accrual accounting over the course of the year.

During the accounting period, unless you have a particular reason to manage taxation/VAT offsets and similar stuff - which I suggest 99% of us don't - then cash accounting is merely common sense.

Thanks for clarifying that

[malvolio]

Thanks for clarifying that

No problem - although it's only my take on it (I've not been an accountant for a long time now) and the professionals may choose to disagree. Bound to be some obscure rules around it.

OTOH I've been running that way for 19 years now and the accountants haven't complained