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Treatment in Balance Sheet of Uncleared Cheques to Creditors

 
 
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      05-05-2011, 10:38 AM
I understand that on preparing a balance sheet some people treat uncleared cheques to creditors as a current liability.

If this is the case, what entry would appear under the heading of current assets in order to balance the accounts?

Would the bank balance include uncleared cheques? Or would a separate account balance be listed?

I’ve recently taken over from an accountant. In the previous year’s accounts £1500 in uncleared cheques appear as a current liability. However, in the current assets section, the bank balance listed has been adjusted downwards to reflect these uncleared cheques. Consequently, in order to balance assets and liabilities CAPITAL has been understated by £1,500

I think I can fix this in the next accounts by 1) omitting uncleared cheques from the balance sheet, and 2) by journal entry, debiting CREDITORS (£1,500) and crediting CAPITAL (£1,500), the narrative being ‘correction of error in previous year’s accounts’.

If this is a correct way of dealing with the matter, how would I word the capital section in the next accounts in order to reflect this adjustment?
 
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