I have a client who takes a 50% deposit from their customer before they supply and fit the goods they sell. The invoice is issued and remaining 50% balance paid by the customer once supply and fitting has been completed. I currently record the deposit as a payment on account against the customer's sales record until the invoice is issued/ balance paid at which time the sale is posted to the P&L.
My client has now asked whether we can account for the deposit as a sale at the time of receipt and accrue for the remaining 50% as a sale at the time the deposit is received, as this would give a better view of their purchase costs as a percentage of sales.
My concern here is that as the good have not been supplied and fitted at the time of deposit then the sale cannot be accrued for. Therefore it would be incorrect to proceed with my clients request. (Note - usually receipt of the deposit and supply/ fitting of the goods do not occur in the same month).
I was just looking for your views on this before going back to my client.
Hi Richard
Apologies - I only half read your question earlier - was actually just switching my phone off completely, but thought I would shove that VAT in so I could look at it properly once I got back.
Anyway -I m sure you are aware that if they are on standard VAT that this is one time that the VAT would be due as soon as the deposit is received regardless as that creates your tax point.
You cannot put this to sales - as you rightly say, there is no sale at that point. It would need to go to deferred income (rather than accrued) - dr Bank, cr deferred income - as this will then show the liability owing to that customer until the good are delivered/sale can be classed as made.
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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
