Company A enters a contract to render services to company B over two years. B has asked A to raise an invoice for the agreed costs which B wil pay in full in advance. How will A record the invoice in the Ledger, as the service has not been provided. Any suggestions?
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Deferred income
The entries are as follows:
Dr Customer ledger Account, Cr Deferred Income, Cr output vat (if applicable) ---This records the invoice
Dr Bank, Cr Customer ledger Account -- This records the payment
End of year 1 - Dr Deferred Income, Cr Sales - Record Year 1 sales
End of year 2- Same as above - To record balance of the sales
Hope this helps
Yes it's a balance sheet item. Effectively it means income received in advance of goods/services being provided, therefore there is an obligation to provide these, which means it is a liability (creditors<1 year)
Less than 1 year?
At the outset, the deferred income for the second year of the lease is a creditor due after more than 1 year.
That's correct, Euan, It is >1 year at the outset. So in Yr1 accounts would you split it between less than 1 year and more than 1 year? Or would you just show the whole lot as > 1 year