The company I have just joined have invoiced in March 2013 (year end 31/03/13) for a service actually provided in April 2013. The invoice was paid in April 2013. I have been asked to defer the income which is currently showing on the P&L in March. If I do this I will be creating a creditor and a debtor for the same thing in March which I don't think is correct is it? Can I instead just post a reversing journal to the debtors control account to effectively remove the debtor (& income) in March and put it into April? I know there are accounting rules about services rendered....creating an asset and releasing it to the P&L as necessary but for £5k do I really need to do this? If so what are the accounting entries?
Thank you in advance for any help/replies.
Replies (4)
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You have a debtor, which is the unpaid invoice. It would not be correct to remove this. The request to you to defer the income is obviously correct as otherwise you will show income in March that should be in April. The deferred element goes into creditors - into Accruals and Deferred Income.
I beleive the correct way to do this is when you enter the invoice you will Dr Debtors and Cr Deferred revenue (Liabilites).when you get payment in Cr Debtors and Debit Cash, and the last journal entry will be Cr Revenue and Dr Deferred Revenue in April.
VAT
Remember that if the supplier of the service is VAT registered, then it is NOT a simplistic equal value debtor and creditor.
The debtor (on the sales ledger) will include VAT.
The deferred income will be the ex VAT value.
The VAT element will be in the VAT account.
The question is if you can create an asset just by issuing an invoice and that invoice if for services to be rendered in the future.
I would say NO
Deferred income should be recognized when (pre-)payments are made (thus you have debit cash @ credit prepayments).