As an intern i have checked the accounts of a company.They have an account called ' General Creditors ' A/c which has no entry / transaction during the year in books,but has an outstanding balance of 19 crores.No list of creditors is available.It is like an empty a/c with a huge closing balance.
My query is - how should the same be treated in books? What is the correct accounting treatment?
for how long is the balance of 19 crores is being c/f in the bks of the co. Aren't the creditor's demanding for their money. You will need to check if the balance is genuine or c/f just like that in the books. Get confirmations from the management..
If no supporting evidence is being found out, then it will be better to write-back the creditor's.
19 crores is the opening balance of this A/c as on 1st april 2011.There is no other entry during the year in that A/c.So 19 crores is the closing balance also.When i asked their accountant that how such a huge amount is payable,he said that the seller is a good friend of their boss & as per their mutual understanding they settle their payments.But this wasnt a satisfactory answer ;all he said was that payment is pending.They do not have any creditors confirmation also.
Can you please explain a little about write backs sir?
Hi Neeti,
Mr. Giridhar is right. You have asked about written back / written off, hence Im giving that answer.
For writing back / off, simply pass following entry :-
General Creditors A/c. ... Debit (to the extent it is fake / unrecoverable)
To Profit & Loss A/c.
Hence, your Profit will be increased to that extent. Writing back / off is nothing but a reversal of appropriation of profits made earlier.
Other members, kindly rectify me if Im wrong.
Thnx yogesh.Assuming the accounts are genuine,what if subsequently some amnt is recovered?what would be the entry then?
Hi Neeti,
I think you wanted to ask that 'what if some amt is PAID later' because in case of creditors question of recovery doesn't arise since you are liable to PAY to creditors.
In such case, you will have to pass normal accounting entry :-
General Creditors Account ... Debit
To Bank Account
First you need to post the reverse entry for the cr's that were written back earlier. After that you can post the normal entry for paying the creditors.
Thnx yogesh & giridhar for your guidance
CAclubindia
