Can anyone suggest a way of accounting for a call off invoice. My company sometimes gets a bulk order for say 5 units of stock, each unit to be delivered each month. They want one invoice for the lot upfront which they will pay for. The units of stock are bespoke and not built until the subsequent month of sale. So their value is reflected in the first invoice but the goods are not made and delivered till months later. How can I account for this to the client - ie he has paid an invoice upfront. I cannot send him another one each month for each of his units, but must keep track of each 'delivery' in the accounts ? Bit of a teazer but I have every confidence in you.
Invoicing up-front will be fine. Just record 5 units worth as deferred income in the first month, 4 in the second and so on. That will spread the taking of income to match with the cost of manufacture of the bespoke stock. Your customer will record 5 units, 4 units and so on as prepaid to match with the receipt of goods on his side.
Can you tell me what you mean by - 'deferred income in the first month, 4 in the second and so on'. ? How do I do that.? I have raised a sales invoice for 5 units which causes a sales 'spike' in the accounts. The customer may not want the next units in consecutive months either, but he has indeed paid for them all, so it is up to him when he wants them.
Say each unit is £100 and the sales code used is 4000, your invoice will have credited £500 to NL code 4000 - your "sales spike". By deferring income I mean smoothing this spike out over the 5 months in which the units are delivered. From your earlier description your monthly sales, beginning with the month of invoice, should be: 0, 100, 100, 100, 100, 100.
Deferred income can be thought of like this: instead of taking all the income to P&L immediately, hold some as a credit on the balance sheet in an "Accruals and Deferred Income" account (or a "Deferred Income" account if you want to keep it separate from the "Accruals" account). Here's what I'd do to deal with it:
create a new short term creditors account. Account 2110 - Deferred income
post a journal dated the end of the month of invoice as Dr 4000 £500, Cr 2110 £500
post a series of 5 journals, dated the end of each subsequent month, to clear the 2110 account at £100 a time. Dr 2100 £100 Cr 4000 £100 five times.
No doubt other will have different ways to end up at the same place but this is certainly one way of doing it. You may wish to leave the journals for £100 until the units have actually been produced and delivered so that you are sure they hit the accounts in the same month that the cost of sales does.
Does that make sense?
Regards,
-- Edited by Onion4Sage on Saturday 6th of June 2015 10:04:30 AM
Say each unit is £100 and the sales code used is 4000, your invoice will have credited £500 to NL code 4000 - your "sales spike". By deferring income I mean smoothing this spike out over the 5 months in which the units are delivered. From your earlier description your monthly sales, beginning with the month of invoice, should be: 0, 100, 100, 100, 100, 100.
Deferred income can be thought of like this: instead of taking all the income to P&L immediately, hold some as a credit on the balance sheet in an "Accruals and Deferred Income" account (or a "Deferred Income" account if you want to keep it separate from the "Accruals" account). Here's what I'd do to deal with it:
create a new short term creditors account. Account 2110 - Deferred income
post a journal dated the end of the month of invoice as Dr 4000 £500, Cr 2110 £500
post a series of 5 journals, dated the end of each subsequent month, to clear the 2110 account at £100 a time. Dr 2100 £100 Cr 4000 £100 five times.
No doubt other will have different ways to end up at the same place but this is certainly one way of doing it. You may wish to leave the journals for £100 until the units have actually been produced and delivered so that you are sure they hit the accounts in the same month that the cost of sales does.
Does that make sense?
Regards,
-- Edited by Onion4Sage on Saturday 6th of June 2015 10:04:30 AM
I would do it exactly the same - was just typing out a response but saw you were online Ian! Might find there is already a nominal code 2110 in there Marina (just thinking of what you were saying about the COA on another thread!).
__________________
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
