Point of sale

JodieR

Client has part of his business set up as follows:

Customers wanting advice pay money into my client's 'trust' account (say £100), they are then provided with a link to submit their question.

Once they've submitted their question and got a reply from a therapist my client transfers £20 to their own current account and £80 to the therapist. (We've been through the treatment of this in great detail in the past and only the £20 needs to be classed as turnover, it's not seen as £100 turnover with an associated cost of £80)

Most of the time this all happens in a matter of days, but I'm preparing the final accounts now and there are quite a lot of cases where the customers have paid the money and then not submitted their question, and never asked for a refund. There's nothing in my client's terms saying that there's a time limit on submitting questions. I'm thinking that there must be a point where the client says 'right, that person's not going to ask a question, that money is now mine and I'll treat the whole amount as a sale and pay VAT on it too' but my client seems happy for the amounts to sit in the trust account indefinitley in case the customer submits his question, and not class the money as sales income.

Do you think I can prepare the accounts based on my client's reasoning, or does that conflict with any accounting standards? (I will def include the client's 20% share in sales, it's the other 80% I'm confused about)

JodieR

I suppose it's kind of opposite to 'bad and doubtful debts', just in reverse!

TreadStone

Strange one and not something I've come across before but I would say that if you can identify the individual amounts of £100 that have "not asked aquestion" then they have received no benefit for their £100. Similarly, your client has not supplied a service/product for that £100.

I would be tempted to class all these single payments of £100 as no more than a payment on account and treat them as such. I would of thought it's almost a deposit of sorts. I wouldn't include any of these £100's in the current year or the 20% element.

That's my initial thought anyway, might change my mind when I have a longer ponder.....

paulstafford

The FRSSE states you should recognise the revenue when the seller obtains the 'right to consideration in exchange for its performance'

Its pretty clear that the therapist 'performs' by answering the question and earns their £80 when the question is answered.

Assuming the questioners can ask for their money back at any time between paying £100 and asking the question, I would recognise the £20 income at the same time as the therapist.

If it is a genuine 'Trust' Bank Account with independent signatories , the £80 should not be recognised in your clients accounts at any point, as it is not their money.

Does that make sense?

TreadStone

I think that's what I was getting at but without reference to FRSSE. It amounts to the same ?

paulstafford

Yes pretty much - the treatment of the £80 depends on whether the bank account is a genuine Trust account, or just a another biz bank account the client places the deposits. If it is the latter then I would do as you suggest.

JodieR

Many thanks for your answers... the 'Trust account' isn't a genuine trust account, it's just a separate bank account which they keep for this purpose.