Basic accounting problem

[xoggoth]

Can't get balance sheet to balance in my exceedingly small business although my books and every example I have looked at says I am doing it right and my previous contracting accounts prepared by accountants were done the same way. It isn't the figures, it is just that the accounting principles for fixed assets and stock appear to make no sense.

Keeping it very simple, no divis/loans to director and everything paid so no debtors or creditors except CT, ignore trivial bank interest/share capital. Also is first year so no carried forward stuff.

P&L
Income
-cost of stock purchases
+stock value
-current expenses
-depreciation
-corporation tax
=retained profit

Balance sheet
Fixed asset value
+Bank/cash
+stock value
-corporation tax (as creditor)
=retained profit from above P&L

CT/stock cancel out and I can see that surplus money goes into bank account, that all adds up fine, it's the fixed assets that are a problem. In P&L we have depreciation but in balance sheet we have current value which is purchase price less depreciation. That does not compute. If next year I start subtracting previous year's stock from profits with no corresponding entry on the balance sheet that computes even less.

Profit for CT is correct and the balance sheet errors are small but if I just fudge the balance sheet and leave a basic problem these errors will keep accumulating year on year. Anyone point out what I am doing wrong? The company has insufficient profits to pay accountants.

Cheers for any ideas.

[Robot]

You have closing stock but no opening stock.

Re current year Depreciation - Debit the P&L and credit the balance sheet; do you have deprecation brought forward from the previous year?

Fixed assets should be

Cost,
Less Dep'n b/f,
Less current years Dep'n
= Net book value

Hope it helps.

Robot

[QwertyBerty]

As a last resort you can always rewind to the start of the financial year and apply all the transactions one at a time, making sure BS balances as you go along. Long-winded but at least you'll identify the problem.

QB.

[xoggoth]

Ta, but as I said is first year so nowt brought forward and I have done things one at a time, it is not the figures. All balances fine if I leave out all figures relating to the fixed assets. There is some fundamental accounting problem I am missing.

On top half balance sheet side = current asset value = purchase price minus current depreciation

On lower half balance sheet (profit c/fwd) = minus current depreciation only

It makes no sense.

[QwertyBerty]

Start of year: i buy laptop for £1000 so assets increase by £1000, bank decreases by £1000. Balances so far.

12 months later: asset depreciates by £200 so asset is now £800. In P&L depreciation is an expense of £200, so P&L decreases by £200. The whole thing should still balance!

QB.

[Sockpuppet]

Bear in mind that:

Laptop £1000.

Depreciation: £200

Value: £800

But your accountant can do:

Profit before depreciation: £5000

Depreciation: £200

After depreciation: £4400

As you can write off 40% of a computer in the first year but only depreciate it over 5 years or something daft.

My accountant last year did it. Depreciated the asset by 1 value to give a book value then used another value to work out the depcn that was offset against CT.

Simple ... or not.

I'll dig out the accountants and see what they say,

[QwertyBerty]

From an accounting point of view you write off the £200 depreciation as an expense to yield a pre-tax profit of £4800 (in your example)

From a tax point of view you can write off whatever HMRC allows you to in the form of Capital Allowances or AIA. Let's assume 50% first year allowance. So taxable profit is £4800 less £500 (50% of £1000 laptop) plus £200 since depreciation is not an allowable expense for tax purposes. This gives a taxable profit of £4500. It is on this amount which you work out CT.

QB.

[where did my id go?]

Bear in mind that:

Laptop £1000.

Depreciation: £200

Value: £800

But your accountant can do:

Profit before depreciation: £5000

Depreciation: £200

After depreciation: £4400

As you can write off 40% of a computer in the first year but only depreciate it over 5 years or something daft.

My accountant last year did it. Depreciated the asset by 1 value to give a book value then used another value to work out the depcn that was offset against CT.

Simple ... or not.

I'll dig out the accountants and see what they say,

But you put balancing charges into your accounts to fix this. I received this wisdom from the Sainted Roger Rabbit //crosses self // late of this parish

[xoggoth]

Hang on, me being daft. Suddenly twigged that it should balance as the bank balance will be less than expected from (income-expenses) by cost of capital so must have an error of about same amount elsewhere. Ta for answers.

PS Still not figured out the next year's stock bit though.

[PhilAtBFCA]

Balance Sheet that doesnt

Xoggoth, if you would like me to take a quick look at it I can do, everyone has made good suggestions, but it still doesnt seem clear what the problem is so I think a look at the whole picture might help. Just send me the P&L and BS only if you wish, here are my contact details. You could also try to PM me, but not sure if its working now.