Have just taken on a new client (hooray - finally things are picking up) In the inital consultation, something was mentioned that has got me thinking about how I am going to show this in the accounts. They run an Internal Design company, and said that fairly often, if they take on a large job, like fitting out a new house for someone, the client will give them a lump sum of money up front for them to buy materials etc from. How am I going to show this money coming in, and then the purchases made from it in Sage? The more I think about it, the more confused I am feeling. I am sure I am missing something simple here I will be putting their accounts onto sage. Currently they present their accountant with a years worth of paperwork for him to prepare the accounts from, so at present I have nothing to refer back too.
I have a similar issue with one of my clients, so I have created an asset in the balance sheet for deposits received before the work is completed, so Dr Bank Cr Deposits received.
Then when the work is completed I transfer it from the deposits received account to the sales account in the profit and loss.
For the purchases, I would include these in the purchases account in the profit and loss (in Sage around the 5000 codes)
Could this payment not just be put on the customers account as a payment on account? Purchases etc then recorded as per normal and then the customer invoice produced accordingly after the completion of the job - minus the payment on account?
(not come accross this, just wondered if that would be possible?)
Strictly speaking Mark's method is probably more correct, but personally I'd do it your way, especially if the work was going to be completed before the end of the financial year. If your client had several deposits at once it would be easier to keep track of via the Sales ledger.
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Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
I would use the payment on account in the sales ledger, much easier to keep track of what the customer actually owes. Just allocate it to the invoice once it is raised.
At year end you will be able to identify any unallocated deposits easilty.
Depending on how many deposits are taken, posting to a seperate balance sheet account will create extra audit trail trasactions and require reconciling frequently, you may even have to keep a seperate list of which deposits you have taken. Simpler all round to use the sales ledger - that's what it is for, so you know exactly what a customer owes you by looking at their account.
One thing tho the invoice has to be for the total sale (inclusove of the deposit) you would probably put some narrative on to say that the depost has been paid. Printing a statement would show all the transactions and balance owning too.
This is just a personal preference, everybody works in different ways to acheive the same end result, you have to go with what works best for you.
I'd also do it through the sales ledger in order to keep track of how much each client has paid and what has been spent against it, you also then know when you need further payments of account (which this is rather than a deposit).
If you did use a deposits account what you would really need to do would be to assign each client as a department then put the deposit and all the purchases against this department which would be another way of keeping track of when you needed further payments of account.
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