I know all the reasons for stating debtors and creditors gross in the balance sheet. But years ago, when double-entry bookkeeping wasn't the norm for small firms, we were instructed to present those figures net of VAT for businesses using VAT cash accounting, on the basis that the VAT liability or credit did not crystallise until the point when payment was made or received (ie after the balance sheet date).
Of course, anyone using Sage or any other double entry bookkeeping program will have debtors and creditors stated gross in their TB; but how about businesses using a single entry system - a cash-book - and employing VAT cash accounting? For businesses fitting the latter description, do other practitioners state their debtor and creditor balances net of VAT in the BS? Hands up anyone who does.
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i'd be stating gross
id state debtors gross:
say:
DR DEBTORS £10,000
CR SALES £10,000
Then amend for memorandum vat. ie.
DR SALES £1,304
CR MEMO VAT £1,304
Vat @ 3/23rds
Net - if tax point is when paid
If you are recognising turnover when due via a demand statement or some such and accounting for Income Arrears rather than a Trade Debtor then i'd show the "Debtor" as Net. The VAT is posted via cash book.
Though you must have some type of accrual system to do this not just ba cash book.
I'd go for gross...
I would go for gross, with 'vat on unpaid invoices' as a current liabilaty, unless the firm gave very extended credit. The logic is you expect this liabilaty to arise, but just do not know when (normally less than a year though). Any invoice you are not going to get paid must be a bad debt and needs to be writen off along with the expectation of having to pay vat.
I'd say gross
Assuming an invoice for £1,000 + VAT was raised before the year end, the company is owed £1,150 by the customer and owes £115 to HMRC.
Under the FRSSE (paragraph 2.11) "the amount of each individual asset or liability ... must be determined separately... assets may not be set off against ... liabilities"
Must be stated gross
VAT Cash Accounting is just an administrative procedure which enables a client to ease his cash flow by delaying the payment of his VAT liability to HMRC. It has no effect whatsoever on the (gross) amounts due from customers or the (gross) amounts payable to suppliers. It would be an absolutely incorrect protocol to state the debtors and creditors of a VAT-registered client net of VAT. The same applies to a client on the VAT Flat Rate Scheme.
No VAT on accruals
VAT only becomes due when an invoice is issued or if earlier, a payment is made. Accruals, by definition, are costs incurred in the accounting period which have not yet been invoiced by the accounting date.
If you want to get into an arcane argument, ask whether we should accrue in the first place for the fees for preparing the annual accounts. After all, the service is not even provided until after the year-end, so how can it be a cost incurred in the accounting period?