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FelixQ
July 26, 2024
Question

Adjust a liability and income account for a closed period (desktop)

  • July 26, 2024
  • 1 reply
  • 0 views

I’m fairly new to the bookkeeping world so I’m learning on the go. The company I work for collects deposits and puts them in a liability account. When the customer is invoiced at the completion of the project, the invoice is meant to charge for the full price and subtract out the deposit, increasing revenue and decreasing the liability account. What sometimes happens is the difference between the sales price and the deposit is entered as revenue, so the liability account is never decreased and we show a smaller amount of revenue.

 

There’s a big discrepancy between the amount showing in the liability account and the bank account where we keep these funds. I’m working on going back through the books and fixing these entries, but I’m in closed periods now and I’m not sure how to approach this. Should I enter an adjusting journal entry to remove the liability and increase revenue? Should I reopen the closed periods? Recommendations?

1 reply

A
Accracy Accounting
July 26, 2024

I understand the whole scenario however I am not quite sure what's happening in the GL. It's hard to suggest because it could be that your revenue and/or liability is understated.

 

Ideally this is what should have been done:

 

Deposit received in Separate Fund Account 

1) Initially Create Bank Deposit for Fund Account
2) Allocate it to Security Deposit Liability Account

 

When invoiced

1) Create Invoice lines with total revenue amount
2) Add additional line for Security Deposit with negative amount
(You will have to add a non-inventory product and allocate security deposit liability as income account)

 

Since there is separate fund bank account for security deposits it's important to make sure a transfer is done both on GL and in the bank when the invoice is generated

 

This will ensure that:

a) revenue is booked correctly

b) liability is reduced

c) invoice amount reflects the correct o/s balance

d) at all times your security deposit bank account should match security deposit chart of account

F
FelixQAuthor
July 26, 2024

I’ve got a pretty good handle on how to record things going forward, it’s correcting for closed periods that I’m unsure about. Should I make an adjusting journal entry?

A
Accracy Accounting
July 26, 2024

Yes, I would suggest doing adjusting JE if your revenue is not materially misstated in the closed period(s). 

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