Client Account Problems

LizR

I have been asked to do the book-keeping for a small company who install micro hydro systems. They want to have their books put onto Clear Books which I've not been familiar with until now but which looks OK.

The system seems to be that the hydro company invoices each customer in three instalments in advance of the work being completed i.e. 40% 40% 20%. A vat invoice is raised for each instalment. However, things then get complicated by the fact that the money received apparently has to be kept in a client account. Not only am I being told that the money has to sit in the client account until completion of each stage of the work on the hydro project, I am now being told that the Client Account has to be in a separate licensed copy of Clear Books "so that the Client Account doesn't appear in the balance sheet"!

This all seems terribly complicated and is surely going to affect the debtors in the main version of Clearbooks as Vat invoices will be raised there but receipt of money in respect of the invoices will go into a bank account in a different copy of Clear Books. I just can't see a necessity for things to be this complicated especially as one can have as many bank accounts as required in Clear Books but I'm due for a difficult meeting tomorrow as the MD of the hydro system co. won't budge .....

Does anyone else use a client account for payments in advance?

JodieR

I would argue that as the business is one entity with one VAT reg no and one corporation tax return to do then the transactions need recording in ONE accounting system. simples.
if the client account belongs to the company then it needs to be declared in the accounts, why would it not be?

LizR

I agree Jodie but the MD is arguing that the money in the client account doesn't belong to the company until the work for which the client has paid has been completed!

JodieR

If the company's raising VAT invoices and being paid for them then that's a sale and needs to be recorded in the accounts. If they wish to be cautious and keep the money to one side until the i's are dotted and the t's are crossed then there's no problem with the seperate bank account, and if it's appropriate you may be able to enter a journal on a monthly/annual basis to account for 'income received in advance' so that the sale figures don't include jobs which haven't been finished, but neither of these factors call for a seperate accounting system.

Monsoon

What Jodie said.

deanshepherd

You could try telling the MD that, because of the VAT issues, it is not possible to record it in 2 separate systems but whether he wants it on the balance sheet or not is a discussion between him and his accountant and has no effect on the bookkeeping.

I'm not quite sure what he thinks he is going to achieve by doing this. Taking positive bank balances 'off balance sheet' is going to make the financial position of the company look worse. I suspect he thinks by doing so he will be avoiding declaring the income until the project is completed but this would be the case anyway (deferred income).