Can I reconcile a statement without matching individual sales invoices which all occurred before the official startup date, to a lump sum transfer into the bank account?

I have a new QB online client who has given me bank statements that show lump sum transfers that are comprised of sales invoices from the period before the startup date of the business. Do I need to match these invoices to the lump sums showing on the statements to complete the reconciliation or can I treat the lump sum transfers as startup money and simply void or exclude the previous sales transactions or even just leave them alone and do nothing with them? The client is not registered for HST. Any help is much appreciated. Thank you.


Hi carbideandtracti

In Canada, there are rules about start up of a business. It would depend on whether your sales for the business are for a self-employed business, or for a corporation. 

If this is a corporation, and there were sales prior to the incorporation date, it would be necessary to determine if those sales were invoiced by the corporation using the corporate name, or whether they were invoiced without the LTD or INC. If those sales were invoiced prior, without the corporate name, then they would likely be on account of the individual, and wouldn't form part of the books and records of the corporation. I'd be very careful to determine exactly what was done and what was intended.

If the business is a self-employed business, then those sales would form part of the income, and as such, you'd want to match those deposits against those invoices, so you'd record the invoices and match the payments from customers to clear those invoices.  

In Canada, it's necessary to do double entry accounting on an accrual basis unless you're a farmer, fisher or commission sales person. That means recording the sales in a register, and the payment of those sales in that same register (accounts receivable) to clear those amounts against the sales.

Sometimes it can be more important in an audit to monitor what happened with deposits than with supplier payments, but those too require matching with the supplier invoices.

I'd start with a careful examination of exactly what those invoices had on them as far as the naming of the business, and possibly discuss that with the owner/manager to determine the intention, were those sales for the business and / or were those deposits for sales by the proprietorship prior to incorporation. Very different outcomes.

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Eileen Reppenhagen , TaxDetective
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