UK Debit balance on supplier accounts

[Riskreep]

And vice versa.

Am I right that these balances should really be, first of all, investigated for the reason behind the unusual balance and rectify if caused by an error; secondly,if no errors simply reclassify the unusual balances for the current period, i.e. if a debit balance on supplier account reclassify as an accounts receivable and vice versa for debtor balances, by posting a journal to this effect, then just reverse the journal in the following period?

 

[smallbushelp]

Yes, if you have an other than normal balance in an account (debit when it should be credit), it should be investigated and corrected if an error is discovered. But sometimes, there could be a good reason for why the abnormal balance exists and it may not necessarily need to be reclassified. That would be a judgment call based on your company's need for really exact accounting or not. In other words, if you're a small company that doesn't produce financial statements for third party users and it's not your fiscal year end, what's wrong with allowing a debit balance on a supplier's account if you know that you'll be incurring charges with them soon and using up that over payment?

 

[Fidget]

And vice versa.

Am I right that these balances should really be, first of all, investigated for the reason behind the unusual balance and rectify if caused by an error;

yes

secondly,if no errors simply reclassify the unusual balances for the current period, i.e. if a debit balance on supplier account reclassify as an accounts receivable and vice versa for debtor balances, by posting a journal to this effect, then just reverse the journal in the following period?

Not so fast!

If, after your investigation, no errors are found, then the balance must be correct. That's just logic. So, if there's still a debit balance on a creditor account, your investigation hasn't been thorough enough to uncover why. There will always be a reason but just deciding to reclassify to another account is just moving the issue around rather than resolving it, since the stray amount would then be in a debtor account where it probably doesn't belong, and that you can't justify either.

Best practice is to resolve it otherwise it'll just surface again at a later date.

 

[Riskreep]

Thank you both. Very helpful.

 

[smallbushelp]

You're welcome. If I was helpful, I would appreciate a "Like."