The next thing we look at is the ‘Month-end’, a lot of companies ‘close’ their accounts at the end of each month, this is purely an accounting exercise so that the Director(s) and the Accountant can see how the company is progressing and what measures, if any, need to be taken.  It is also helpful in relation to preparing Year End Accounts.

 The first thing that must be done is to go through the Purchase Ledger and balance each of the accounts which appear in them.  These samples give an idea as to what should be done and what to expect.                                                                                       

In the case of the account of William Bloggs & Son when January and February accounts were prepared there was no necessity to ‘balance off’ in this manner as the £28.15 shown as a January purchase would have sufficed as it was.

 In the case of J. Henderson, you will see the balance brought forward is shown on the Debit Side, this is due to an error in calculation and will be put right when the    next payment made will be this amount short.  Having completed going through the Purchase Ledger you will need to prepare a schedule of Debtors showing how much is due to each Supplier, this means compiling a list and going thru the Purchase Ledger extracting only the balances, this is completed in the manner of an ‘Analysis’ where you show the debt to due to each of your Suppliers by individual month and the Total as shown in the following example.

You will need to keep this to hand for when you begin to Balance the Purchase Control Account in the Nominal Ledger.  The Control Account  should agree with this Schedule, if it doesn’t you will have to back track to find the discrepancy correct the error.

Having finished with the Purchase Ledger, the next thing to look at is the Sales Ledger and, again, we repeat the exercise of balancing each of the accounts.  These two samples hopefully will give you an idea as to what should be done and what to expect, for the second of the two is not straightforward.

Here we had the months of January and February Invoices due and the account was balanced as shown with the balance being settled in March.

With this account you will see that only two Invoices were ‘posted’ in February with the Account ‘balanced off’ at the close of February.  Subsequently there was a partial payment of £8750.00 received against this account which would indicate that there is a query or problem running which you would need to know about.

As with the Purchase Ledger, having balanced each of the Sales Ledger Accounts you will need to produce an ‘Age Analysis’, this is a list of the customers who have yet to settle accounts with their debt shown in total and then extended out to individual months.  This helps when letters are sent to remind them of their debt.  Again, it would be wise to keep this to one side with the Purchase Ledger list of balances until you get into the Nominal Ledger.

Again, you will need to keep this to hand for when you begin to Balance the Nominal Ledger, as the Sales Control Account must agree with this Analysis and if there is a difference then you will have to find the error and correct it.

You will also need to agree the ‘Cash Control Account’ to the Balance shown in the Cash Book.  Again, if there is a discrepancy it must be found and corrected.

With regard to the V.A.T. Control Account if the majority of your clients are within the U.K. I would normally expect you to be paying V.A.T.  For a Governmental form this is one of the simplest forms any Government has produced.  In order to help I have shown a ‘dummy’ which I have used in the past:-

As you can see, the amount of VAT you have charged your clients for the months shown is entered against the respective month and then totalled.  You treat the VAT on Purchases and Petty Cash in a similar manner.  Normally your VAT on Sales would exceed the VAT on Purchases and Petty Cash in which case the total shown against “Amount due to or from H.M.R.C.” would be payable to them.  The second part of this form should help with the second half of the Return, you simply enter the Total and VAT amounts from your Sales Day Book and calculate the ‘Nett’ amount for each month and then repeat for the Purchase Day Book and Petty Cash Book and show the Totals in the respective ‘Boxes’ on the Return.

 You may occasionally claim VAT back from H.M.R.C. where you have had a ‘poor’ month or so on Sales or for other reasons. 

 If you ever have a ‘Phone call from your VAT Inspector asking to come and see your books – DON’T panic, it’s his job and he is only making sure that you are recording VAT correctly – if you aren’t don’t worry, he will simply put you right and – unless you are deliberately ‘fiddling the books’ – they are nice people and can be very helpful.