Credit balance with supplier

JodieR

I'm drawing up a balance sheet for a client who only uses one trade account (everything else is paid for up-front) but at the end of the year he had a credit balance with this supplier. Would you show the balance as a negative current liability or as a current asset (and if so what would you call it?)?

Dean

JodieR wrote: »

negative current liability

I'd show it as a positive current liability :001_tongue:

Regards

Dean

JodieR

well yeah-but-no-but-yeah!

cheers!

deanshepherd

Not sure that's allowed..

If its a debtor its a debtor.

Poodle

I agree with Dean,

Its a purchase ledger debit balance and should be shown under debtors:001_smile:

Poodle

JodieR

thanks, at least the difference in opinions shows it wasn't an entirely stupid question, but the debate came after the accounts were printed out and I wasn't about to go and change them! The amount was under £100 anyway, so I'm not too worried if its wrong.
:001_smile:

Dean

You could show it both ways; horses for courses really! Granted it won't 'look' right but a client would understand why he is due money back from a creditor if he knows he has overpaid., Whereas, if he has been paid by his customers in full, he may not understand why there is a debtor being shown.

Normally this sort of thing is lost amoungst the other creditors included within trade creditors' - because you have the one trade credit account (as said above) it may look odd. If it was for company/investment preparation then where you show it wouldn't affect the ratios i.e. liquidity.

Regards

Dean

deanshepherd

I don't think you can choose to net-off debtors against creditors, which is effectively what you are suggesting.

If the client doesn't understand then that is what we are here for.

That said.. materiality is one of my favourite accounting concepts!

JoideR's too in this case!!

Poodle

deanshepherd wrote: »

I don't think you can choose to net-off debtors against creditors, which is effectively what you are suggesting.

Quite right too and it's all probably nicely wrapped up in FRS 3.:001_smile:

Poodle

Dean

Poodle wrote: »

Quite right too and it's all probably nicely wrapped up in FRS 3.:001_smile:

Poodle

If that's 'quite right' do you care to shed some more detailed light on it as Dean seems to me he is unsure of it himself? As I don't see how it would be contained in a standard that deals with the Profit and Loss accont.

Materiality, consistency, understandability all good concepts here but essentially it is a case of professional judement - which reverts back to me saying there isn't a write and wrong answer in this case. It could be shown both ways. The Balance Sheet nets-off current assets anyway so I don't see a problem in presenting the transaction as a positive amoungst trade creditors. Are you telling me you sift through your clients' aged creditors lists and adjust any with a positive balance to trade debtors?

Regards

Dean

Jan

Does anybody else just love these "spats" between the Deans?

I love it when what seems like a simple question ends up in a major discussion

:tongue_smilie: (nearest I can find to tongue in cheek)

deanshepherd

Haha.. I love a good fight!!

Dean,

I tried to tone down my reply because I can sometimes come across as a bit conceited.

I am not unsure at all. It is not subjective. You cannot set off positive trade creditor balances and, yes, one of the first things I do is print off an aged creditor listing and journal the debit balances to debtors in the accounts.

This is not a matter of professional judgement it is a financial reporting requirement (FRS5 rather than FRS3).

Of course in this case £100 is probably neither here nor there.

:thumbup:

Poodle

Dean wrote: »

Are you telling me you sift through your clients' aged creditors lists and adjust any with a positive balance to trade debtors?

Yes and no, as Dean S said materiality does apply. I do review debtor and creditor lists with my clients as a matter of course and if overpayments in either ledger would make the resultant understated figure in the balance sheet misleading to a reader of the accounts then yes I do strip it out.


Poodle

PS I did mean FRS5, dusty old keyboard and the need to visit the opticians:001_wub:

PPS Dean S we all know that you are a big softy really, especially where IVA's are concerned......

CHUNKYMONKEY

"at the end of the year he had a credit balance with this supplier."

Lol you've completely lost me!
i took question as though it was a creditor and would go into balance sheet as creditor under current liabilities,

im not even asking why its a debtor, im so lost lol

Dean

I have been deciding whether to continue this thread or not as these 'spats' appear to be becoming more frequent and quite frankly I don't have the time to quote exact facts to a 'simple' answer. On conclusion there were a few flaws in what Dean said, and, on reading this thread back implies my initial reply is cut-throat incorrect.

Dean, this time you've got my back up and I'll explain why:

First of all this was a very simple case as my opening ‘smiley’ suggested. It is highly unlikely in normal circumstance that a business will significantly overpay it’s creditors hence my non-regard to the monetary amounts involved. While standards are nice and juicy I suspected Jodie may be preparing accounts for a ST rather than a LTD and the need for a full standard to be applied not required!

I am not unsure at all.

I commented on you being unsure because of this;

Not sure that's allowed..

I don't think you can choose to net-off debtors against creditors, which is effectively what you are suggesting.

Maybe you thought I was 'knocking' you but I most certainly wasn't. I was merely suggesting to Poodle, how can that be ‘quite right’ when you appear so unsure.

You certainly don't have to 'tone down' your replies as far as I am concerned. Perhaps you can just be yourself in future? That, at least will avoid any confusion.

That said.. materiality is one of my favourite accounting concepts!

It is not subjective.

This is not a matter of professional judgement it is a financial reporting requirement (FRS5 rather than FRS3).

I'm amazed by those comments. May I suggest having a read of the MLR, PRPG & PCRT (taxation ethical documents but 'materiality all the same). Also see below ‘the meaning of 'significant' (taken from FRS5). If not here is a Wikipedia summary:

Materiality is a concept or convention within auditing and accounting relating to the importance of an amount, transaction, or discrepancy. The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in conformity with an identified financial reporting framework such as Generally Accepted Accounting Principles (GAAP). The assessment of what is material is a matter of professional judgment.

You cannot set off positive trade creditor balances

While I agree you cannot ‘offset’ assets and liabilities as per Regulation 29 of FRS5. The substance of this particular transaction isn’t that clear-cut.

Per Regulation 21 of FRS5:

Transactions in previously recognised assets
Continued recognition of an asset in its entirety
21 Where a transaction involving a previously recognised asset results in no significantchange in -
(a) the entity's rights or other access to benefits relating to that asset, or
(b) its exposure to the risks inherent in those benefits,

the entire asset should continue to be recognised. In particular this will be the case for any transaction that is in substance a financing of a previously recognised asset, unless the conditions for a linked presentation
given in paragraphs 26 and 27 are met, in which case such a presentation should be used.

Special cases
23 Paragraphs 21 and 22 deal with most transactions affecting items previously recognised as assets. In other cases where there is a significant change in the entity's rights to benefits and exposure to risks but the provisions of paragraph 22 are not met, the description or monetary amount relating to an asset should, where necessary, be changed and a liability recognised for any obligations to transfer benefits that are assumed. These cases arise where the transaction takes one or more of the following forms:
(a) a transfer of only part of the item in question;
(b) a transfer of all of the item for only part of its life; and
(c) a transfer of all of the item for all of its life but where the entity retains some significant right to benefits or exposure to risk.

24 In the special cases referred to in paragraph 23, where the amount of any resulting gain or loss is uncertain, full provision should be made for any probable loss but recognition of any gain, to the extent it is in doubt, should be deferred. In addition, where the uncertainty could have a material effect on the financial statements, this fact should be disclosed in the notes to the financial statements.

The meaning of 'significant'
25 In applying paragraphs 21-23 above and paragraph 26 below, 'significant' should be judged in relation to those benefits and risks that are likely to occur in practice, and not in relation to the total possible benefits and risks.

This all leads me back to saying ‘its horses for courses’. It could be shown both ways. Although, I would add to my opening response; you should give regard to disclosure in the accounts if the amount looks ‘odd’ (which in this case it would) or the amount is significant enough to warrant it.

I'm not going to continue this thread any longer, so consider that it from me.

Regards

Dean

deanshepherd

I have obviously put your nose out of joint Dean and for that I apologise.

I can't help but think I am in a no win situation here.

My initial posts may have come across as 'unsure', however, my intention was to remove the self-righteousness of the way I normally answer because that also seems to offend people.

I have no idea why you are asking me to read CIOT's Professional Rules and Practice Guidelines and CIOT's Professional Conduct in Relation to Taxation. Correct me if I am wrong, but I did not think you were even an ATT member let alone a CIOT member so I am not entirely sure what you are getting at.

Either way, I have to concede you are absolutely right.

Net them off. Who cares about FRS5 anyway.

Everything is immaterial in the end.