My client in a large constructions company. They have a large amount of retention sat in their debtors and for one reason or another they would like to reduce the debtors and account for these retentions in a different way. Researching the HMRC website their advice is as follows:
include retentions within turnover, provide for the estimated cost of remedial work, and make provision for any debt impairment or
defer recognition of retentions until their receipt becomes virtually certain.
My questions are.....If we were to estimate the cost of remedial work and post that to creditors (to offset the debt in debtors) where would I post the debit, purchases?? or elsewhere??
Or
If they were to decide that they would like to remove the debt completely out of debtors and post the retention at a later date, when it becomes 'certain' . Would it be appropriate to credit debtors and debit sales?? It could be a large figure??
I post my retentions to the SFP in the 1100 range in sage, it sits there until it becomes due, normally a year later. When it's payable i journal it out of the retention account and then post an invoice to the customers account.
In this way our receivables are not over inflated in the SPL.
