Brain Lapse - please assist!

T.C.

I have a builder client who received a £50,000 down payment on a job at the end of his financial year, but no expenses were occurred. How can I enter this in the accounts so that the £50,000 is not included as an unrealistic profit in that year, but carried over to the next. I just can't get my head around this one this morning.

jilt

Treat the £50,000 as a payment on account from the customer, debit bank credit customer's account. Then when the invoice is posted to that customer's account in the next financial year apply the payment against it.

T.C.

Thank you! How would you show it on the P & L?

jilt

You wouldn't, if it's simply a payment on account from the customer then it will show on the balance sheet under debtors, but as it's a large payment, and if his customers don't usually have credit terms then the debtors figure may well be a credit rather than a debit so would be a liability...if that makes sense.

T.C.

Yes that does make sense, thanks. It's not something I have come across for a long time, so my brain just couldn't work it out. Thanks again for your help.

Bluewednesday

You have come across it before, it's really part of revenue recognition, if you read that it will state whether any part of it can be recognised as turnover.

PGM

From the sound of it I think it should be recorded as deferred income on the balance sheet.

jilt

PGM wrote: »

From the sound of it I think it should be recorded as deferred income on the balance sheet.

Yeah I considered that myself but had a complete blank and couldn't think of the damn word 'deferred'! :blushing: