6. calculate your total outstanding debtors and creditors
In an accrual system any outstanding amounts must be included in the end of year bookkeeping calculations for tax purposes.
This is for outstanding sales invoices which your customers haven’t paid yet (receivables).
Or outstanding bills which you haven’t paid yet (payables).
Not every business has to pay tax on accrued amounts (such as in the USA only larger businesses must do this). Check up on where you live to find out your obligations.
If you are using full-featured bookkeeping software where you enter all your sales and purchase invoices, your system will enable you to quickly produce a report for the outstanding amounts.
However, if you haven’t entered invoices into your bookkeeping software you will need to manually compile a list of what’s outstanding.
what outstanding bills to include in end of year bookkeeping
If your balance date is 31 December and:
- you receive a bill in the post in January
- that is dated 31 December or earlier
- and you only pay for it in January or later
- it needs to go on the list.
how to handle old, unpaid purchase invoices
If you have old outstanding purchase invoices but you are sure they were paid, investigate why they are still showing and fix them in your system.
A classic error that many people make is to pay a vendor but instead of applying the payment to the invoice in the bookkeeping system, they've entered the payment directly to the expense account.
This actually means the amount will be showing twice in their expenses (once through the invoice, and once through this direct payment). If this is you, find out how to fix it in your bookkeeping software.
What Outstanding Sales Invoices to Include
Or, you might send an invoice to a customer dated 10 December, but they only pay you in January, this amount must go on the list.
Also include any other outstanding amounts, no matter how old (you might have some that are years old, but I hope not!).
how to handle old unpaid sales invoices
The same could apply to sales invoices where you received a payment but instead of applying the payment to the invoice, you’ve entered it directly to the income account.
These need to be fixed.
If your old customer invoices have not been paid, consider writing them off to bad debts (see Step 7 below).