Accruals question

[hooked cruiser]

My landlord has failed to take rent from me although an agreement was made. (I know I should be happy) I have placed the rent owing as an accrual for the outstanding amounts up to the end of 2011 and the accounts have been completed for this financial year.
The landlord has now decided to reduce the rent amounts and therefore the amount in the Accrual nominal exceeds that amount considerably. I am assuming that I can now do a journal entry from the accruals to the rent account for the total now agreed with the landlord?
But this will now leave an excess in the accruals nominal. Can anybody advise on how this should be accounted for and what journal entry should be made for the amount to clear the accruals nominal?

[brucedenney]

What you have been doing is to create an expense in the P&L of "Rent" because the actual rent invoice never turned up.

You have been doing this by making journal entries in the P&L to represent the expense and a counter entry in the balance sheet to represent the liability to the landlord.

This has left you with a balance in the Balance sheet for the liability and expenses in the P&L for the cost of rent.

You have now agreed a new rent and that has been applied retrospectively so the amount you have accrued for is now larger than the actual amount.

So you now enter the actual invoices and reverse the accruals.

This will have the consequence that there will be a negative brought forward figure in the P&L, the backdated invoices and the reversals of the accruals for the period in last year will have created this.

The rent for each period this year should now be correct.

Effectively you overstated your rent in your last financial year as a result of this and this is the amount. You may want to contact your accountant about the tax implications of this. There could be benefits to making the "correction" in last year or leaving it in this. If you put it in last year then the accountant may ask you to journal the B/F figure into the retained profit and loss account on the last day of last year.

[hooked cruiser]

Thanks for that Bruce it all makes sense and it has been suggested that I carry this on into this year as our tax year in Ireland is Jan to Dec and that is now closed off.