End of period adjustments
To set up, and maintain, end of period/year adjustments select Balance sheet from the Back Office form.
Warning - end of period adjustments requires a fairly high level of accounting/bookkeeping knowledge. Do not carry out these operations if you are not sure what you are doing.
You may carry out end of period adjustments when certain payments and expenses cross periods. For example you may have paid insurance in June for twelve months. At the end of the financial year (assuming it is March) your insurance company has been paid for three months in advance. You therefore subtract 3 months of that payment from your expense for the current year and add it to the following year. Similar adjustments may be carried out for leases, rates, wages and salaries and for invoiced income and supplier charges.
To carry out end of period adjustments follow the sequence below:
1. Set up a ledger control record. This defines the current period/year. Note the need to include an expense and income account on this form. These are to place the required totals in the correct place in the Balance Sheet. The accounts you should select are Loans as the income account and asset depreciation as the expense account.
2. Set up the required journals. The contents of the journals do not appear on any reports. They are "buckets" to hold transaction adjustments until they are posted to the ledger. They are also used to ensure any adjustments balance. You can create default credit and debit ledger links that help simplify the entry of journal adjustments.
3. Enter the journal adjustment transactions. Each journal adjustment must consist of at least two entries, a debit and a credit. Some may have more than two. But all such entries must balance. That is, total credit value minus total debit value must equal zero. If it does not you may not post the entries to the ledger.
Start Journal adjustments from the company control form by clicking the General Ledger button:
Special note on accounting for loans.
Loan capital value is not a taxable income. You need to set up a loan account as income, not taxable (that is it doesn't appear on your profit and loss report) and not subject to G.S.T. However loan repayments decrease your tax liability. So you need to set up a loan repayments account as taxable, but not subject to G.S.T.
Loans are a balance sheet account and you need to decrease their value or the IRD won't accept they were really loans. To do that you need to set up a Journal account (not ledger account).
Journal accounts are set up under the balance sheet options. The journal should be called something like "Loan repayments". This is the only part of the software that requires both debit and credit entries. You need to set up the journal so it debits the loan account and credits the loan repayment account (that is sets the loan repayments account at zero at the beginning of each year). You record loan repayments as a normal expense as you make them. Because you can claim them as a taxable expense.
During the year that doesn't, actually, decrease the loan value on the books unless you do a journal adjustment. You don't want to do that during the year. Because, if you do, you're cancelling a tax deductible expense. Do it at the end of the year, after you have sent your tax return in. So the new year starts with the loan value as total loan minus any loan repayments. And the balance in the loan repayments account is zero.