Can I pick your brains please (if you managed to stay fresh in this heat). I work as accounts assistant for private nurseries. When child starts nursery we charge 100 deposit. Which I was wrongly told was an advance payment towards child's bill. So initially I would record it on Sage as payment on account to then allocate against their first bill. Now it turns out this is not an advance payment but a deposit that has to be returned when child leaves nursery. How do I record it. Shell I simply raise a credit note against last invoice?
a deposit should be recorded as a liability until a business has the right to receive it.
It should not go anywhere near revenue but rather be treated almost as an interest free loan from the client.
In your situation at the end of the term the liability could be settled either by transfer to final payment or refund to the client reducing current liabilities.
That pretty much works the same for rental properties.
Note that even if it is probable that the liability will go over more than one period always record deposits as current as it could be reclaimed at any time.
kind regards,
Shaun.
p.s. don't use sage so I'll leave it to others to fill in the gaps over which nominal codes etc.
p.s.2 if you have been recording deposits as revenue you may have been overstating income so the client may have been paying too much tax.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Personally I would post all receipts against the customers sales ledger account, issue invoices as and when the bils are due, and reduce the balance accordingly. Any credit balances can then be refunded when the child leaves
As much as I undersood the outline I am struggling with double entry. So say I created a libility account Fee deposit (FD for short). What will be the double entry. Dr Bank, Cr FD? And then when I have to return this payment again not sure how to link clients account, bank, liability account? Sorry for being so daft never came across deposits/rent.
But thats treating money that does not belong to you as revenue and ignoring the associated liability.
Say the business looks after 60 children, thats a £6k understatement of current liabilities which is likely to be material to the financial statements.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The issue I think is that the deposits and the sales are being mixed in the same account.
My double entries would be :
On receipt of the deposit :
- Dr Bank
- Cr Client Deposit Account
On return of the deposit
- Dr Client Deposit Account
- Cr Bank
For advance payments rather than deposits it would be :
- Dr Bank
- Cr Client Deposit Account
On use
- Dr Client Deposit Account
- Cr Client Account
- Dr Client Account
- Cr Sales
Which has effectively moved the deposit to sales without affecting the bank.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
No, it would sit on the balance sheet, possibly as an overall negative debtor balance, but it wouldnt touch sales, only the invoices would do that. The debtors would need to be looked at if doing any accounts prep, as any negative balances should be transferred to creditors
I think some of this is down to the respective software we use being utilised in different ways.
I can see what your saying Chris but I think that we get to the same results from different angles.
I would not need to do a transfer to creditors but I would have more client accounts as the deposits are kept seperate to the sales.
Swings and roundabouts and as I say, probably influenced more than a little by the software that we use with mine definitely being geared more towards small numbers of deposits than huge volumes which would be a bit of a nightmare to maintain.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Like you say Shamus, as long as everything isnt posted to directly to sales it will work out. I was going to ask if you had seen my question re vat cash accounting but is on Sage anyway
Hi Just to throw something else into the mix - should the deposit monies not be kept in a separate (physical) Bank account eg savings account at the Bank called Client Monies because as you say the money doesn't 'belong' to the company. This would also make it easier to control and can be balanced easily alongside your liability account.
Whilst in sage you can do journal entries to move monies in and out of this new Bank account and your liability account you could always consider still invoicing and quoting the client monies liability account nominal code when you key your invoice (so some invoices will go to sales and others to the liab account). Then you process your payments in the same way as normal, just from your new Bank account and a Bank Rec is also possible!
Hope that makes sense as my rambling brain is suffering with an overdose of sun.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
