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Sale accrual/prepayment

  • Member
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  • # 118719

Probably, I ought to know this as I've passed my exams but somehow this escapes me.

I have a client who began on the 12th of December. So one months work is 12th of each month to 11th of next. I give them a bill for this, the first being 1st of January - ie 20 days in arrears and 11 days in advance. They pay on 15th of the month. My own tax year was 6th April to 5th April. For a round number, lets say the monthly bill is £310.00.

So on 5th April there'll be two adjustments. A debt and an accrual/prepayment. I'm beggared if I can work either of them out and be sure I've got it straight. I'm thinking this:

Dr Debtor a/c   310.00   Cr  Client a/c  310.00 (ie whole month)

Dr Sales a/c       60.00   Cr  Prep a/c     60.00 (6 days: 6th-11th April)

I think it's a prepayment as I've included the whole month as being in debt. Perhaps it should be an accrual ???

Thanks

Peter

  • Member PM.Dip
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  • # 118724

Peter100 said:

Probably, I ought to know this as I've passed my exams but somehow this escapes me.

I have a client who began on the 12th of December. So one months work is 12th of each month to 11th of next. I give them a bill for this, the first being 1st of January - ie 20 days in arrears and 11 days in advance. They pay on 15th of the month. My own tax year was 6th April to 5th April. For a round number, lets say the monthly bill is £310.00.

So on 5th April there'll be two adjustments. A debt and an accrual/prepayment. I'm beggared if I can work either of them out and be sure I've got it straight. I'm thinking this:

Dr Debtor a/c   310.00   Cr  Client a/c  310.00 (ie whole month)

Dr Sales a/c       60.00   Cr  Prep a/c     60.00 (6 days: 6th-11th April)

I think it's a prepayment as I've included the whole month as being in debt. Perhaps it should be an accrual ???

Thanks

Peter


 Hi Peter

 

The fees billed in advance is deferred revenue (or deferred income) and is usually classifed as a current liability on the balance sheet. Deferred revenue a liability because it is unearned revenue which represents products/services that are owed to the customer. Deferred revenue can be classified as a long-term liability if the products/services are not expected to be provided to the customer within the next 12 months.

 

In your scenario: At 5th April you had 6 days of fees billed in advance and therefore need to move this to your deferred revenue account in the balance sheet. So providing that the initial posting for that sales invoice was Dr Debtor a/c, Cr Sales a/c, the adjustment entry would be:

Dr Sales a/c with 6 days worth of fees billed in advance

Cr Deferred revenue (a liability account on the Balance Sheet) with 6 days worth of fees billed in advance.

 

I hope this has helped.

 

All the best.

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  • # 118730

Thank you


I think this is just what I required.

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