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Advance payments to suppliers - where do they go?

Do you show advance payments to suppliers as debtors or as the asset they will eventually acquire?

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Do you show advance payments to suppliers as debtors or as the asset they will eventually acquire? Maybe I am having a senior moment as I thought these must be shown as debtors - technically you are owed the money back (by the supplier) until they give you what you paid for.

I'm talking to someone who is putting an advance payment in stock because that's what is going to be acquired, but we haven't acquired it yet! There's no asset to back up any entry in stock records and I can't see how I can validly show a value in stock at year end for goods we do not possess.

Where would I find something in accounting standards to back up the right answer?

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18th Dec 2018 16:22

It’s common sense, not accounting standards. Your analysis is correct and the person you are talking to is not thinking straight.

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18th Dec 2018 16:57

Think of it as an isolated transaction. If the only payment in the year was £1000 for stock, your mate would have a loss of £1000, whereas the truth is, you've made neither profit or loss; you've simply turned cash into a debtor.

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18th Dec 2018 16:57

What you have there is a financial asset.
Stock is a non-financial asset.
QED

What do they do when the goods arrive then? (CR PL, Dr?)

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to WhichTyler
18th Dec 2018 17:26

And what is the lead time between payment and goods in?

Could make a case for goods in transit, but depends on your control method for booking goods received...

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to WhichTyler
18th Dec 2018 19:47

The goods are coming from overseas....

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to WhichTyler
18th Dec 2018 19:48

They reverse the payment that's currently sat in stock, and recognise the receipt of the goods which puts them back in stock...

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to jpwattam
18th Dec 2018 22:18

Then they may as well book it to debtors. if they have to reverse it out later, why not put it in the right place to begin with

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19th Dec 2018 08:57

I like to put the debit to creditors as it's money I would have eventually owed to a supplier after the supply but I've paid it in advance. Then when the goods arrive I reverse the creditors entry and put it to debtors as my customers will eventually owe me for the goods I'm going to sell them.

Finally, when I sell them, I reverse the debtor as I'm no longer owed for them and put them in stock so I can move them to purchases.

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19th Dec 2018 17:30

Common sense or generally accepted accounting practice? Does UK GAAP differ from US GAAP or German GAAP in this respect? (I doubt it... just grasping for an explanation of the different treatment.)

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19th Dec 2018 18:17

Common sense or generally accepted accounting practice? Does UK GAAP differ from US GAAP or German GAAP in this respect? (I doubt it... just grasping for an explanation of the different treatment.)

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