Financial Information
negative balance in account payable?
Question : negative balance in account payable?
i’m auditing a client who has a negative balance in one of its trade payables, reason being some purchases not taken up in the prior yr, hence when they pay the creditor, they debit trade payables, credit bank. actually since the purchases were not taken up in the previous yr, when they pay the creditors this year, the double entry shd be dr. p&l, cr. bank, charging the loss in p&l, am i right? if so, what should the line item in the p&l be if it’s material to present it as a single line item?
any other comments on this matter?
accounts payable audit
Best answer:
Answer by ?U3$ T!ON
yes
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#2 written by Sandy 1 year ago
You should correct this like so:
Dr Purchases xxx
Cr AP xxxIt shouldn’t be material if it’s trade purchases. The worst that can happen is you distort the GP ratio for both yrs – it’d be lower this yr than it shd be and higher last yr. The fact that the review of GP ratio last yr didn’t throw up any red flags shows that it’s not that material.
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no. the entry should be a credit to the payable and a debit to retained earnings, since it transpired in the previous year. But you could probably shortcut the technicality if it’s immaterial to last year and just debit miscellaneous expense in the curent year.