Reply With Quoteyou post the payment to HMRC when its made in month 2, how else can you reconcile you bank account. At the end of month 1 you have a creditor to HMRC recorded.Originally Posted by Foggy
Hi all
A payroll related accounting question.
A company's April payroll (net pay) is paid in April and a journal posted in to accounting period 1 to reflect the gross cost etc. One of the entries is a liability on the balance sheet to show monies due to HMRC (NI, tax etc).
The actual payment is made to HMRC in the following month ie. May
On your accounting system do you post that HMRC payment in the books to period 1 or period 2?
Please justify your answer.
Thanks
Foggy
ps I'm 99.9999% sure I know the answer but somebody else, at a more senior level in the orgnaisation, is saying the opposite !!
you post the payment to HMRC when its made in month 2, how else can you reconcile you bank account. At the end of month 1 you have a creditor to HMRC recorded.
In very general and simple terms:
In month 1 it's part of your monthly expenses and booked to your P&l account, in the balance sheet you have a liability to HRMC End of month 1
in month 2 you pay from the bank account (reducing your assets) and remove the HRMC liability (reducing liabilities) so that net asset value remains unchanged by the payment.
i.e.. MOnth 1 you recognise the cost and reduction of net asset value, in month 2 you make the payment but net asset value remains as per month 1.
why? .... technically it's down to the accounting principles that dictate you should recognize liabilities or costs as soon as they are triggered eg consumed, committed, and irreversible (prudence), and your balance sheet should show the net reaisable value of the assets it you settled all outstanding debts and liabilities, and collected all due revenues or assets at any given accounting period.
Last edited by I AM LATE!; 29th June 2017 at 14:32.
Thanks for the replies so far. So which accounting period are you posting the entry capturing the payment made to HMRC in may (relating to April deductions) to? period 1 or 2?
Cheers
Foggy
he is posting the payment in period 2 (when it was made) but recognising the expense in period 1 (when it was incurred).
Simple example, i buy an apple from on 30 June, agree to pay you £1, but dont pay you into 1 July.
In my June accounts i have an expense of £1 and a creditor of £1
In my July accounts i have physically paid so i decrease my bank asset £1 and also decrease my creditor liability by £1
Thanks, I am having the accruals concept thrown at me and being told to post the payment transaction in period 1, albeit with the actual transaction date, as that is the period it relates to even though the payment transaction took place in month 2.
That's against all I have ever understood to be the accruals concept, as I believe I have followed it correctly by posting the I&E elements in the correct period I.e. Period 1.
As far as I am concerned the payment transaction belongs in period 2 and is solely balance sheet entries i.e. Cr bank, dr creditors.
To post this in period 1 would give a false balance sheet. All agreed?
Cheers
Foggy
Last edited by Foggy; 29th June 2017 at 19:21.
How can you post a payment in one period with a payment date in another doesn't make sense
Your summary is correct anyway
Thanks very much for hour help - much appreciated, I thought I was going mad.
If anyone else agrees with us please post a +1 so I have more weight when I go in with a challenge tomorrow.
Cheers
Foggy
Agreed,recognise cost in period 1 , bank payment in period 2.
+1.
The accruals concept is what you're applying. Under the accrual basis expenses are matched with the related revenue and reported when the expense occurs, not when the cash is paid.
It's a +1 here
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Agreed.
In Period One you are only recognizing the expenses in the proper period, even though you have not actually paid them by month-end. The following month, Period Two, when you actually pay the obligation, you merely reduce your bank account balance and reduce your liability account by the corresponding amount (i.e., debits = credits).
pacifichrono, Certified Public Accountant (State of Minnesota, USA) - retired
Thanks all for the replies, much appreciated.
If there are any more +1's in agreement, please keep,posting.
Equally, any in diasagreement, please post with reasons.
Thanks again, and have a good a Friday.
Cheers
Foggy
+1 from me (a retired Chartered Accountant)
+1 agree. Chartered Accountant.
Post payroll expense and liabilities in period one.
Post payment of payroll liabilities in period two when actually paid and taken out of bank account.
Do it every month for Chapter 13 Standing Trustees I compile monthly reports on trust and expense transactions for submission to US Department of Justice's Executive Office For Untied States Trustees or designees thereof.
CPA here. Clean press and alterations of figures is my life!
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