Accounting entries-please help!

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT member discussion
Can anyone help, please? I'm grateful for any assistance. It's these wretched contractor and subcontractor payments (of which I've had little experience so far) and, significantly, the associated entries in the final accounts of both. (Sales, cost of sales and any others). The subcontractor pays Vat on the flat rate scheme.

Can I give an example?

A subcontractor's invoice:
Call out £80
Materials £72
Labour £150
Subtotal £302
Vat £52.85

Total £354.85

Contractor's payment of this invoice
Valuation £302
Tax on £150 (£27)
@ 18%
Total £275
Vat (on £302) £52.85
Total £327.85

What are the entries in the final accounts of the subcontractor and the contractor?

I'm really grateful for your help. :)

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Accounting entries-please help, all you clever people!
    BlueRhapsody wrote:
    Can anyone help, please? I'm grateful for any assistance. It's these wretched contractor and subcontractor payments (of which I've had little experience so far) and, significantly, the associated entries in the final accounts of both. (Sales, cost of sales and any others). The subcontractor pays Vat on the flat rate scheme.

    Can I give an example?

    A subcontractor's invoice:
    Call out £80
    Materials £72
    Labour £150
    Subtotal £302
    Vat £52.85

    Total £354.85

    Contractor's payment of this invoice
    Valuation £302
    Tax on £150 (£27)
    @ 18%
    Total £275
    Vat (on £302) £52.85
    Total £327.85

    What are the entries in the final accounts of the subcontractor and the contractor?

    I'm really grateful for your help. :)

    Subcontractor entry.

    DR Bank £327.85 (being payment received)
    DR Income tax paid £27.00 (i.e tax paid to be deducted from final Income tax bill)

    CR Sales £354.85 (includes VAT as on flat rate scheme)

    Contractor entry

    DR Purchases/sub-con labour £302.00
    DR VAT £52.85

    CR Bank £327.85 (actual amount paid)
    CR CIS Tax payable £27 (ie Tax creditor)

    Hope this helps

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accounting entries-please help!

    Thank you, pne. That has helped. Can I ask your advice further?

    It turns out that the 'company' in question is a contractor and a subcontractor. The 'cost of sales' in the final accounts would presumably include Vat, as the flat rate scheme is used.

    The tax entries puzzle me, as they can be netted off. How will they appear in the final set of accounts, and what about 'retentions'? As my training accountant always advised me, I am trying to 'keep it simple', but I need to be sure everything is covered.

    Thanks again.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accounting entries-please help, all you clever people!


    Retentions are debited to the cost on the P & L and credited to the BS as a liability.

    The tax element is also a liability for the BS to be paid over with PAYE. But the debit is to the P & L - you need the gross cost before tax & retention in the P & L.

    Helen
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accounting entries-please help!

    Thanks, Helen. Just so I am clear - you know more about this than I do - are you saying retentions on the subcontractors application for payment are debited to his profit and loss as an expense,and retentions he then holds back as a contractor are liabilities on his balance sheet? If the latter is correct, shouldn't the former be treated as debtors on his balance sheet as it is money owed to him?

    Thank you very much!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accounting entries-please help!


    I'm a contractor that pays sub-contractors so I've answered from that perspective.

    I owe the retentions to the sub-contractor so they are my liability and yes, I am his debtor.

    One word of caution. I receive gross invoices for the full amount. Very often I also receive a second invoice for the retention when it is due.

    That has resulted in the sub-contractor overstating their turnover - because they've included the amount twice.

    It doesn't affect me because I only enter what I need - but can cause problems for the sub-contractor's accountant.

    Helen

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