how to deal with this in Sage

goldring
goldring Feels At HomeRegistered Posts: 45
Hi,
We receive a credit note from one supplier and agreed that the credit amount would be used for next year's service we expect to use.

So is it right that I enter the credit note under the supplier's account, but use prepayment code. It shows a minus figure on their account. But then the prepayment goes to the credit side, which seems not right, as I thought prepayment should always be a debit?

What's the solution?Any suggestions.

tks

Comments

  • villapb
    villapb Trusted Regular Registered Posts: 357
    They should have given a cash refund tbh, far eaiser to process. You need to show it as payment on account and next year when they issue the invoice for the srvice, the payment on account you allocate the payment to it. So the minus fiqure is ok but its not a prepayment really, more payment on account. Use journal to reverse what you have done and process the credit note as normal. The bank will now show more than the creditor ie supplier which is the payment on account. Next year allocate the payment on account to the invoice for the service. eh bingo all square and ties up vat too.
  • coojee
    coojee Experienced Mentor Registered Posts: 794
    You don't want it to be a prepayment because the credit note relates to this year not next year. For example, say it was rent:

    Invoice for this year issued for £10,000 and you've paid in full
    Then they decide they've overcharged you and issue you a credit note for £2000 which you agree to use as payment against next years rent invoice.
    The charge for rent in this years accounts needs to be £8000 so the credit note gets posted to rent to reduce it from £10000 to £8000
    In the suppliers account you have a DR balance of £2000 carried forward, that's fine, not a problem.
    Next year they send you an invoice for the full amount of the rent, let's say it's £8000 again. You DR Rent and CR PLCA.
    Now there's a balance of £6000 on the supplier account and that's all you need to pay
  • goldring
    goldring Feels At Home Registered Posts: 45
    would it make any difference, if our situation is that we booked the service, but never used it , but still paid in full, and then cancelled, and the supplier offered the credit note to pay for next year?

    Thinking about it, I think both of you are right, as the expenses did not actual occur during this financial year, so it should not be accounted for. So do we also need to adjust the whole payment minus the credit amount from the actual expenses code, to other expenses. Or we could just leave it as it is?

    I am told by the senior staff to treat it as a prepayment, but I have doubts about it, how do i approach to the senior staff .
  • coojee
    coojee Experienced Mentor Registered Posts: 794
    goldring wrote: »
    would it make any difference, if our situation is that we booked the service, but never used it , but still paid in full, and then cancelled, and the supplier offered the credit note to pay for next year?

    Thinking about it, I think both of you are right, as the expenses did not actual occur during this financial year, so it should not be accounted for. So do we also need to adjust the whole payment minus the credit amount from the actual expenses code, to other expenses. Or we could just leave it as it is?

    I am told by the senior staff to treat it as a prepayment, but I have doubts about it, how do i approach to the senior staff .

    If you didn't use the service but you've paid for it then the credit note still goes to this years expense because presumably it's for the full amount of what you've paid. That means that this years charge goes to nil (which is what you want) and you have a DR balance on the PLCA to go against next years invoice (again, what you want)
  • goldring
    goldring Feels At Home Registered Posts: 45
    they did not give us a full refund, only part.
    I suppose the part that was not been refunded would be classified as expenses even though we did not use the service?
  • goldring
    goldring Feels At Home Registered Posts: 45
    coojee wrote: »
    If you didn't use the service but you've paid for it then the credit note still goes to this years expense because presumably it's for the full amount of what you've paid. That means that this years charge goes to nil (which is what you want) and you have a DR balance on the PLCA to go against next years invoice (again, what you want)

    so, at the year end, it would reduce the CREDITOR'S, as it was posted to PLCA, but strictly speaking it should not have done so as that would be for next financial year, in a sense, that would understate the creditors' amount, would not it?
  • coojee
    coojee Experienced Mentor Registered Posts: 794
    goldring wrote: »
    so, at the year end, it would reduce the CREDITOR'S, as it was posted to PLCA, but strictly speaking it should not have done so as that would be for next financial year, in a sense, that would understate the creditors' amount, would not it?

    Creditors are still correct as technically you've made an overpayment which you need to reflect. At the end of the day wherever you put the credit note (creditors or prepayments) it will still be a DR to the balance sheet so overall the balance sheet is correctly stated and that's all that matters.
  • goldring
    goldring Feels At Home Registered Posts: 45
    not to worry too much then, :thumbup1::001_smile:
  • villapb
    villapb Trusted Regular Registered Posts: 357
    It cant be a prepayment as the service supplier hasn,t invoiced you dated the present accounting service, and you paid it, but some of the benefit will be taken in the next accounting period, th prepayment. Hmrc wouldnt allow it they would ask for the evidence and if no invoice, no evidence. Next period you get an invoice and then allocate the over payment ie payment on account. I can see where your senior guy is getting confused but his treatment is wrong ........
  • villapb
    villapb Trusted Regular Registered Posts: 357
    dont forget CREDITORS.........is a obligation of the business, ie it owes money, does your business owe money is this case, NO...
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