Overstated liability due to prior years errors
Posted: 14 Jun 2022, 19:28
Liability balance for “received not billed” materials & services is overstated due to duplicated confirmation of receptions of materials and services done in prior years.
Each time there is a confirmation of receipt, the system debits expense or inventory accounts and credits the liability account.
The supplier invoice should extinguish the “received not billed liability” but this never happened because materials were never delivered, and services were never rendered. The receptions in the system were manual errors that now results in an overstated liability.
In order to correct this we need to debit our liability and I am not sure which account I should credit.
For services: Shall I use the original expense account used at the time of the incorrect reception (e.g selling expenses, admin expenses…) or should I use a general one such as “other period expenses” or should I reflect this credit in an income PnL account (i.e “other income”)?
For Inventory: Clearly I won ‘t use the same account than the initial one because this will lead to wrong stocks, so should I use “other manufacturing expenses” or a more general one or “other period expenses” or should I reflect this credit in an income PnL account?
Does IFRS provides any guidance on this?
Thanks!
Each time there is a confirmation of receipt, the system debits expense or inventory accounts and credits the liability account.
The supplier invoice should extinguish the “received not billed liability” but this never happened because materials were never delivered, and services were never rendered. The receptions in the system were manual errors that now results in an overstated liability.
In order to correct this we need to debit our liability and I am not sure which account I should credit.
For services: Shall I use the original expense account used at the time of the incorrect reception (e.g selling expenses, admin expenses…) or should I use a general one such as “other period expenses” or should I reflect this credit in an income PnL account (i.e “other income”)?
For Inventory: Clearly I won ‘t use the same account than the initial one because this will lead to wrong stocks, so should I use “other manufacturing expenses” or a more general one or “other period expenses” or should I reflect this credit in an income PnL account?
Does IFRS provides any guidance on this?
Thanks!