Sales spilt between two accounting years.

vivfry84

The company I work for has a year ending 31 December. We sell large machinery which require deposits up front. My question is how do I record the sale if the deposit is in the previous year and the balance in the current year? We are vat registered as well??
Can I create a different account/nominal and hold the deposits in there until the full payment has been received? Also we have to purchase the machinery from our supplier so that would fall into the pervious period meaning out creditors would be very over stated?

Neillaw

Do you not invoice the deposit and then invoice the balance on completion - how do they know what to pay?

vivfry84

Yes we do for the full amount so there is an out standing amount in the debtors account but my manager wants to know if there's a better way of recording this within the accounts.

vivfry84

We have to pay the full amount to our supplier for the machinery on ordering.

Neillaw

Won't it just be easier to invoice the deposit and then when the machine is delivered etc invoice the whole amount less the deposit.

CeeJaySix

The question is when the criteria for revenue to be recognised have been met - broadly when do the risks and rewards pass from one party to the other.

If the deposit is non-refundable, I would argue that this should be recognised as revenue on receipt. If it is cancellable you'll have a creditor rather than a sale.

If the contract for purchase is non-cancellable, you should also recognised a sale and a debtor at this point for the full amount.

If it is cancellable, then the sale should not be recognised until the risks and rewards of ownership of the machinery has passed, which will depend on your terms of sale but may be for example on delivery to the customer.

Your creditors won't be 'overstated' if they are genuine creditors - they may just be larger than you would like by comparison to your debtors! However the difference would surely be in stock?