Unexpected cash -v- balance sheet

Sandtree

Not sure if we get any accountants on here but worth asking the question...

I was wondering if unexpected money appears into your Ltd's bank account how this should be accounted for on the balance sheet. In my noddy mind it will have to sit on the assets side under "cash in the bank" but as its unallocated/unknown why its there it feels like a liability should also be set up as inevitably it'll be an error by someone that needs refunding or its a client overpaying and you may just agree to use it towards the work in progress you have for them etc (for which you may already have sitting in the assets).

Is this right? Are there any GAAP/IFRS guidelines on if/when this must be done or when it can be released if no claims are made to the funds? 

oldbikebloke

in principle you are correct,
- if you suspect it is an erroneous receipt then it is an "other creditor", not a trade creditor as there is no trading relationship with the payee, but there is a liability to return it since it is not the company's money

- if it is a receipt from a named customer (or supplier) which is going to be refunded or offset against the respective account balance, then it is OK to hold as unallocated receipt in the debtors (or creditors) control account until it is cleared 

Sandtree

oldbikebloke said:

- if it is a receipt from a named customer (or supplier) which is going to be refunded or offset against the respective account balance, then it is OK to hold as unallocated receipt in the debtors (or creditors) control account until it is cleared 

I'm a little less clear on this one and may be over thinking it because of a particular scenario...

So we act as an agent for our clients dealing with their customers for them, we appoint suppliers on our clients behalf to provide services to their customers and have a client fund account for each client that we pay these suppliers and/or customers from. Obviously these accounts are off balance sheet as its not our funds.

We charge a per instruction fee of circa £500 lets say that is billable on completion, when a new instruction is set up in the system our accounts create a WIP fee of £300, when the instruction is closed the WIP is released and should be replaced with an invoice for the full £500 and that fee paid out of the client fund account into our own account.

A quick spot check has found a number of cases  the person who closed the instruction has raised the payment from the client fund into our account but failed to raise the invoice and so the WIP was released automatically on the closure, the money has gone into unallocated and nothings been done since. 

I am just curious as to what should have happened on the balance sheet (I understand in practice nothing has been done so its just sat there as an asset so raising the invoice will impact the P&L but not improve the balance sheet)

oldbikebloke

leave it to your accountant
whether the recognition of income is material in the relevant accounting year in accordance with accounting standards is a matter for them to sort, especially if it triggers a need to restate prior year accounts and refile tax returns 

Sandtree

oldbikebloke said:

leave it to your accountant

Absolutely will... its just from a self education perspective as I was surprised its allowable to leave the cash on the balance sheet when you don't really know whats is for... in absolute terms its a reasonable amount in total (not just from this problem) but proportionally to total revenue its immaterial and some has been in unallocated for 4+ years

oldbikebloke

if you employ your own accountant staff directly you should fire them for leaving it so long

if you use an external accountant, such accountants are focused on only one thing: to file a set of accounts for the least amount of work, for the most amount of fees paid to them. The whole point of immaterial issues is it provides then just causes for not spending their own time/money sorting it out because it is not big enough to matter. 

Sandtree

oldbikebloke said:

if you employ your own accountant staff directly you should fire them for leaving it so long 

Would it be worrying if I said that I have worked with much worse?  Senior finance manager that wrote a business case, which was peer reviewed, saying amortizing acquisition costs would be revenue and cash generating and have nil costs to implement despite the IT project being stood up to make the product changes to enable it?