Carrying forward part sales value

Carrying forward part sales value

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Sole trader (year-end 30th March) obtained a contract for 2 months work straddling the accounting year.

He received 80% payment up front 1st March and issued an invoice for this to comply with VAT regs.

Final 20% paid at end of April on completion.

So 50% of work completed in each Accounting year but 80% invoiced in first of these.

Question: Subject to some minor adjustments for materials etc. can say about 30% of first invoice value be carried forward into following year.

The contract was significant to the business and will skew the year on year P&L’s if not.

Seems reasonable but I’ve not encountered this scenario before and would appreciate any comments.

Replies (2)

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Stephen Quay
By squay
29th Aug 2012 00:22

Yes. Treat as a deposit.

Are you sure the year end is 30 March and not 31 March which would be far more practical?

Assuming you mean 30 March. Its perfectly reasonable to treat the first 50% as being sales prior to 31 March and the remaining 30% of the invoice as a deposit against the balance of work to be completed after 30 March. Simply enter a journal to debit the sales account and credit deposits received on the balance sheet. This customer will then become a creditor because you have received money from them but you owe them work in return.

On 31 March (at the start of the next accounting period) reverse the above journal so sales will show 30% and the deposit will be cleared. Then when the second invoice for 20% is raised the total sales for the job will be 50% in the accounting period. Job done and perfectly acceptable in showing true and fair accounts.

Incidentally you should ignore VAT in the journal as this is correctly taken care of by the two invoices and is purely an accounting adjustment.

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By amwraith
29th Aug 2012 00:37

Many thanks squay for your comprehensive response.  After a long day just couldn't be certain what I was proposing was legitimate.

Yes it is 31st March year-end - (Another end of the day senior moment) 

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