UK Accounting Adjustments in two reporting periods

[Melaccio]

Hi everyone,

I am an ACCA student, at the final stage to complete the certification.

At work, I had an issue with the recording of an adjustment in two financial periods.

Two invoices billed from the same client have not been recorded.

1st Invoice: 3,000 Euro issued on 1st August 2019.
2nd Invoice: 4,500 Euro issued on 1st August 2020.

The chief accountant told me to pass an adjustment for 2019 and 2020 (adjustment for 2021 is not needed at the moment). I got quite confusing, and the chief accountant help me by showing me the recording entries:

2019 (1st Invoice)

Dr Prepayment - 1,250 Euro
Dr Adm. Cost 2019 - 1,750 Euro
Cr Trade payables - (3,000) Euro

2020 (1st Invoice)

Dr Retained Earnings - 1,750 Euro
Cr Prepayment - (1,750) Euro

2020 (2nd Invoice)

Dr Prepayment - 1,875 Euro
Dr Adm. cost 2020 - 2,625 Euro
Cr Trade payables - (4,500) Euro

Really simple to pass the first adjustment in 2019. However, I found quite confusing the adjustment for the financial year 2020.

Can someone help me to understand?

I think it’s wrong because the Prepayment Closing Balance in 2020 is Dr 75 Euro. Shouldn’t the closing balance be Dr 2,625 Euro, as the Prepayment for 2019 (Dr 1,250 Euro) have been reversed in 2020?

Thank you who will help me to understand.

 

[kirby]

I do not agree with what your chief accountant is teaching you. Here's why.
According to the entries shown, an entry will be posted in 2021 to the 2019 and 2020 books - which should both be closed years.
If your company previously prepared and sent out to investors, govt or lenders any statements for 2019 and 2020, then posting entries now to those years means the financials previously distributed no longer agree to your accounting books.
And that's a problem...

 

[vedika]

Hello.

I am not agree with your 2019 adjustment entry, Becasue Invoice are not billed in 2019 year but payment has been made only recording was not done.right?
So first we have check that what was the payment method cash or bank?
then we will think how to adjust it

 

[xasqwer]

Are you sure that you have correctly accounted for the liabilities and assets of the company for the reporting period? According to your records, it seems that a mistake has been made somewhere. It is possible that your chief accountant gave you the wrong instructions. Try to consult with your colleague or manager.