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Accounting for Gross Sales in P&L

Taking on a new client and the previous accountant has been recording turnover as gross sales

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New client. Last 2 years accounts are reporting turnover using gross sales. Then there is a large overhead called VAT flat rate scheme. The accounting policy says turnover is recorded net of vat.

I would normally record net sales and a VAT credit within my turnover figure. 

Has anyone else seen this before? Or can see a reason why you would do this?

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By Accountant A
10th Sep 2018 11:55

You've said it. The figures are not consistent with the stated accounting policy.

No idea what the technical answer is but I would have thought that the policy was correct and the disclosure incorrect. That's based on zero knowledge of FRS.

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By andy.partridge
10th Sep 2018 12:07

Stick to your guns and amend the comparatives.

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By alec247
10th Sep 2018 12:17

"Expenses will probably be shown inclusive of VAT as it is irrecoverable (similar to a business not registered for VAT), and it is likely that turnover will be shown net of the flat rate VAT payment. You may however find that the flat rate VAT payment is shown as a profit and loss expense rather than deducted from total turnover."

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim31585

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Out of my mind
By runningmate
10th Sep 2018 12:21

I would suggest recording sales net of output VAT as the turnover. I usually record expenditures net of VAT, too. But the input VAT is irrecoverable, so I show a debit for irrecoverable input VAT as a P&L A/c line.
RM

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RLI
By lionofludesch
10th Sep 2018 13:54

FRS 105 says sales have to be recorded net of VAT.

It's not an option to inflate your turnover in this way.

Not to mention it's not in accordance with the stated policy.

I put it down to poor standards in the accounting industry.

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