Prepaid Heavy Vehicle Tax
This account reconciliation is an
Asset
account type and an Amortizable
Prepaid reconciliation type.
This type of reconciliation is used when you are paying a for an
item in one accounting period, and expensing it over several future
accounting periods. The most common type of expense of this sort
would be property taxes. They are usually paid in advance for the
whole year. For this example, we are amortizing the Heavy Vehicle
Use Tax paid annually to the IRS.
In this example, the balance in the General Ledger is being
compared with net amount remaining for Heavy Vehicle Use Tax that is paid by the company
when they file their Form 2290.
Note the Description section that
specifies the specific form that is filed and the due date of the
form. The Company Policy section shows the amortization period. This information is easily accessible when
completing the reconciliation by clicking on the Account Information
tab.
Something to notice about
the above reconciliation is that the two reconciling items relate to
the same error. It is understandable that in November the
amortization for the new vehicle was not recorded, but the recurring
monthly journal entries should have been changed to include this new
amount. The journal entries were not corrected for the December
month end.
Preparation of reconciliations does not
guarantee correct accounting, but it does provide a tool for someone
to review and identify oversights and errors. In this example, an
error was identified in December when the November month end
reconciliation was prepared. The error was not corrected in
December, and another error was made related to the same item in
December. Hopefully the comment about changing the standard journal
entry for January is true.
If you are a
supervisor/manager that is delegating the preparation of
reconciliations, it is still your responsibility to review the work
of your staff. If your boss is reviewing the reconciliations that
you have prepared, that's what they should be doing. Thank them for
keeping things up to date and in compliance with company policy.
The key to setting up the items to be
amortized is the Amortizable Prepaid Item window. Below is license
fee for the Mack MR truck with license number EEK722.
Note that the Comments section has no
additional information. Sometimes additional information is not
really valuable, but you never know. It might have been a good idea
to add a little more information about the truck, such as the model
year and the body type, just to make it easier to identify in case
there was a question in the future about this item. The best time to
gather information is when you have it... not re-creating it later.
Use your own judgment about the value of additional information. Our
suggestion is that more is better. The Amortization Begin Date and
the Amortization End Date are based on the actual dates of the
license.
After the window has been completed, the
Monthly Amounts to be amortized must be set up. The window to do
that is shown here. It is accessed by clicking on the Monthly
Amounts button.
The amounts to be amortized are
automatically calculated based on the information entered in the
Amortizable Prepaid Item window. These amounts can be changed, if
necessary. You will be advised that there is a "Balance remaining to
be amortized" if the amounts you enter do not total the amount being
amortized.
The final reconciliation report is here.
You can see that Mr. Adler was busy doing a lot of Christmas
shopping. Even though he identified a problem in November that the
amortization of the new truck purchased on 11/23 was not recorded
properly, the correction was not made and was again noted in the
December reconciliation - along with the December error amount. The
Comments section shows that the amount appears to be taken care of
and should be reflected properly in the January reconciliation.
This particular account is reconciled with no Unidentified
Difference, but there are two Reconciling Items that will be corrected
in the future.
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