This should be simple...

stefanborostefanboro Well-KnownPosts: 187Registered
Hi guys,

So, you have a company in the construction industry.

This company has a reasonably complicated payment system with its sole customer.

It must apply for payment on works it has done within one month (Let's say December) - this is known as the application - and then this amount gets approved (or disapproved, the amount is never dead accurate) around two months later (February, let's say). It is at this point an invoice is issued.

The chartered accountant, who can be frequently wrong although would never admit so, has been doing the bookkeeping as follows:

When an application is made he is recording it as sales in the month in which it was made (December).

When the payments are approved and the proper invoices are then compared with the original applications and it is at this point (in Feb) that either a credit note or a further invoice is entered into sage - depending on whether the applications are more or less then the invoices.

The only thing is that the applications could be completely rejected. And then, if the year end accounts end on 31st December then you have a set of accounts which has sales figures for the last two months of the year which frankly are not sales at all but applications for sales. You are then charged corporation tax on this figure.

My way of doing it, and a way which is consistent with the accruals principal and the principal of substance over form (yes, the invoice dates might be two months late but they do refer to works performed over two months a go) is to:

1. Enter the applications as sales in December
2. When the invoices are issued in Feb go back to the applications in December and adjust them accordingly, so the sales figure for December matches the invoices issued in Feb.

This way the year end accounts won't include ANY applications which frankly could be silly figures plucked from thin air to make the accounts better or worst.

Thoughts and suggestions warmly welcomed providing you have managed to get this far and managed to absorb the gist of this diatribe.

Comments

  • stefanborostefanboro Well-Known Posts: 187Registered
    P.S. VAT is not an issue yet as they are on the cash accounting scheme - but, going forward, they may not be eligable for this.
  • BluewednesdayBluewednesday Font Of All Knowledge Posts: 1,624Registered
    We deal with application for payments in relation to a roofing company.

    I keep mine separately and they only go on when invoiced, however at the end of the year I total up the application for payments and journal them on as work in progress, as they are work that has been done but not invoiced.

    I suspect your accountant may be doing it the way he is to ensure that the applications can be tracked within the accounting system, I have to look in a different place to chase up applications that haven't been paid which is a bit of a pain!

    Why are they rejecting it if the work has been done? Ours very rarely differ from the application, do they have valid reasons for paying different amounts?

    If you want to pm me you are more than welcome.
  • Gem7321Gem7321 Experienced Mentor DevonPosts: 1,438MAAT, AAT Licensed Accountant
    Same as Bluewednesday the applications are done seperately, filed, then referred to when it comes to raising the invoice so only the invoice goes through the accounting system.

    My client does a lot of work in the public sector, mostly schools, so the school often gets funding for such projects and they ask for an application before the work is done so they don't lose their funding as it's normally on a 30 day deadline. As long as you have a reliable quotation process the application shouldn't be too far off, surely?
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