Hi, I work for a Local Authority which purchases large quantities of fuel for its own use - mainly for the Refuse Trucks etc. Very occasionally we will supply fuel to a third party, eg the NHS especially when there are shortages. Normally for the Local Authorities own use we charge the cost centre for its use of fuel and this is then controlled by a Balance Sheet account which looks at stock etc. However if we make a sale to a third party what should the transactions be? Should we charge a cost centre within the Local Authority and then credit the income all within the Revenue Accounts? An alternative would be to charge the Sundry Debtors account and then match this off against the invoice we create for the recharge. I would have preferred this option since the charging of an ad hoc cost centre within our Revenue Accounts surely will distort our expenditure and income especially since we are not in the business of selling fuel to anyone! However my bosses have told me to do it this way so I have to bow to their superior knowledge. What do you think? I would love to know what the correct Accounting treatment is? Thank you in advance for any help with this subject.
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However my bosses have told me to do it this way so I have to bow to their superior knowledge. What do you think?
I think you do what your bosses say and don’t look to make issues out of trivialities.
There is likely no correct treatment, there is probably merely what fits within the accounting framework the LA adopts and I very much doubt anyone on here is up to speed with LA accounting or auditing.
(The firm I apprenticed with did audit two or three smaller councils, later incorporated into other authorities but that was in the 80s and I never really did any work re same anyway)
There is no one way of doing things, that must be followed blindly.
Local authotities work on budgets
It would seem normal to be that the fuel budget gets a charge when buying fuel and a credit when selling
That way the fuel budget recognises the actual fuel usage
For what it is worth I would probably have posted:
Dr Debtors (BS)
Cr Gain on fuel Sales (IE)
For the sales invoice
Dr Gain on Fuel sales(IE)
Cr Carrying stock of fuel(BS)
For the stock issued
If a profit or loss I would likely have recognised as a single entry in the I & E, if sold at cost then no entry required.
Not sure any cost centre would have got the I & E postings, but if one had to it would be head office or similar (When I worked with Benetton and we sold stock in bulk to other shops I would show wholesale sales/Wholesale cost of sales, Wholesale Gross Profit within my Head Office cost centre, but that was stock and it was selling what we normally sold just not via the shops.)