Hi all,
I have a concern relate to the treatment for trade receivable and need your help. My company provides advertising service for some customers and always has a separate contract for each time. We use usually require customer to advance a certain percent of contract value before work carried out and when the work completely done we invoice customer with the total contract value. So at the year endwe have both debit and credit balance for each customer.
Is it reasonable for us to net off such balances together and just present a ultimate debit or credit balance for each customer?
Please provide the regulation/standard that specifics the guidance for this issue (if any).
I really appreciate for your help.
Replies (12)
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You cannot net off assets and liabilities unless a) you've a legal right to do so e.g. your customer asks you to do so, or b) permitted by the accounting standards (IAS 1.32, FRS3 which is roughly equivalent to IAS1). None of these seem to apply in your case so you can't net if off.
Monetary item
Thank for your help. I also thought like you. Beside your idear, I also think the receivable and advance balance from th same customer has difference subtance. Receivable balance is a monetary item but advance amount is not ( IAS 21). And in case that balance is not same as reporting currency, the treatment at as reporting date for two items is also different e.g, monetary item use the closing rate whilst the non-monetary uses the exchange rate at transaction date. So, it is in appropriate to net off two item that difference in nature.
Puzzled. If the credit balance isn't a "monetary" item, what kind of item is it?
Disagree. Common sense comes
Disagree. Common sense comes first. It would be absurd to show your clients' part payments as a liability and the debts due from them un-reduced by the part payments they have made.
Of course you net off.
Not about common sense
Disagree. Common sense comes first. It would be absurd to show your clients' part payments as a liability and the debts due from them un-reduced by the part payments they have made.
Of course you net off.
OP is not asking for a common sense answer. Whilst the person is the same the debit and credit are for different projects
That's not my reading of the OP's explanation. The creditors are part-payments received against the invoices in debtors.
I'm going to disagree with you all on this one.
The correct accounting should surely be that for a long-term contract (with percentage of completion accounting). SSAP 9 sets out the accounting for long-term contracts, and Appendix 3 in particular gives the details of how to deal with debtor balances for invoices, etc.
Quite so, Limey - but that wasn't exactly the question. If we are assuming (and, admittedly, the question does not clarify this) that the debit and credit balances in question relate to the same contract, then the debit balance can only be an "Amount Recoverable on Contract" since no invoice will have been raised yet. So the answer is clearly - yes, offset. (Note, however, that SSAP 9 doesn't actually apply - he's using those infernal international thingies)
I think you are over-thinking this, and as a result you are not seeing the wood for the trees.
Of course the payments on account you receive from your customers are monetary amounts. Either you have to repay them if you don't fulfil the contract. If so, the amount you repay is a fixed monetary amount. Or you give credit for the payments against your final invoice. If so, the amount of the credit you give is a fixed monetary amount.
On the question as to whether you have one balance or two separate ones think of it this way. If your customer sued you recover his payments on account after you had completed the contract and raised your final invoice would you pay? Of course not. If you sued your customer to recover your gross final invoice without deducting the payments on account he had already made would you expect him to pay? Of course not.