Accounts question regarding end of year accounts and ordered vehicles that have deposits on that haven't arrived in stock in this in the given financial year.
Can these ordered vehicles be included within the balance sheet as a liability for that financial year. I have all physical invoices showing the outstanding balance
Would these be categorised similarly to a trade creditor?
Thanks in advance
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Replies (19)
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You shouldn’t recognise the liability to pay for the item unless and until it has been delivered and is in your possession. After all, if it’s never delivered you won’t be paying for it will you?
OP...
This is, of course, correct. However, I read the question the opposite way around (that the customer deposit is the liability - not a deposit or future debt to the supplier)
Please confirm the exact nature of the transaction/ transactions or you will definitely receive conflicting advice.
Just to clarify...
Your customer has ordered the vehicles and paid you a deposit, but you haven't yet taken ownership of the vehicles?
Your question could also read that it is you that had paid the deposit for stock but, that would make the latter part (re. showing a liability) incorrect.
Assuming this is a 'second hand' car sales business (per your previous Q), and there is no 'main dealer agency' contract to potentially confuse matters... where else would you be thinking of including the deposit, other than as a (current) liability? Income? What if you can't ultimately supply the car? Would you have to pay the deposit back?
FWIW I'd not include it as 'trade creditors' though... 'Other Creditors' or a separate 'Deposits' line would make more sense.
The other consideration (which I doubt to be the case) is whether it is actually your money? Is the deposit 'held' in your current account, or is it in a 'ring fenced' account (such as Escrow, Transpact etc.)? If so, there is a question of whether the deposit should be shown in your accounts at all.
Incidentally, accounting treatment, and VAT treatment of the deposits differs. For VAT, output VAT is due on receipt (income). For accounts, that treatment does not make it 'Revenue'!
Just as an aside, and (hopefully) stating the obvious... you are not accounting for the car that (I assume) is not owned by you as 'stock' are you?
Finally, I am assuming you are only preparing the drafts? If so, I advise you ask your/ the company accountant how this should be reported (they have far more knowledge of the specific facts than anyone on this forum). If you don't have a external accountant, have a good read of FRS105/ FRS102* (*delete as appropriate), or better still, appoint an accountant who will have already done the reading for you!
The crux of it is that this non-event shouldn't affect profit. It's either not included at all or there are matching assets and liabilities.
Sounds like the former is the better bet but, once the facts are clarified, I might go for the latter.
Having re-read the question and other responses, I admit I'm now completely at a loss as to what the question is.
I must be missing something because my most recent interpretation is whether vehicles should be shown as a liability?!
Is it that vehicles that are not yet in stock, have been included in the stock figure, but have unpaid amounts outstanding to the supplier?
Is it that the vehicles have a sale 'agreed' with customer who has paid a deposit, for vehicles not yet received in stock that have been part-paid to the supplier?
Is it something completely different?
What is the corresponding debit to the liability entry (cash, stock, expense...)?
Is anyone else confused, or is it just me?
I took it that the fella wanted to include the debt but not the corresponding stock/prepayment/whatever.
Hi All.
Thanks for the replies and apologies for the confusion.
It's a car sales business.
3 New vehicles (£100,000 each - Total cost £300,000) have been ordered and part payment has been made for them( £10,000*3 = £30,000), they are brand new and are being built. NOT YET Delivered.
These vehicles will arrive in the next financial year and sold on.
£270,000 is has not been paid, but it is owed. Will this show as a liability on the balance sheet?
How is the part payment shown (£30,000). The part payment was made in the financial year that i'm doing the draft for.
Will these none physical show as a liability? and not show as stock as its not physical? - therefore reducing my net current assets and reducing my profits for that year?
I hope this makes sense.
Thanks again.
The deposit entry has been shown above already by DKL.
Are you preparing drafts for the external Accountant to finalise? If so I would also let him see your full workings.
The deposits received go in deferred income in creditors. The unpaid balances go nowhere as they are not, despite what you say, “owing” to anyone until the vehicles arrive. As I said above you will never be paying them if the vehicles are never delivered will you?
I understand your point.
If they never arrive then of course they won't be paid for. They will 100% will be delivered.
Didn't want to break any rules. I just needed to legally reduce profit
Well, you could sell one of your cars for a loss ... OR you could appoint an accountant to advise you (preferably before the next 'need to restate the past' arrives).
I will admit getting the wrong end of the stick with your initial question - which may have - inadvertently - misled the entire thread.
However, I fail to see where, in any permutation, the 'stock' (purchased on-hand, or paid-for in part/ full but stuck on a production line) would reduce profit - legally or otherwise?
Are you (perhaps) suggesting that the stock you don't yet own has an NRV of less than cost? Are you buying high, selling cheap?
Even in the event your potential acquisition is valued at less than cost (which I sincerely doubt), it shouldn't actually affect this P&L... BUT, at least it may explain why you feel the profit would be lower.
There are still too many unanswered questions which, in all honesty, can't be covered on this forum. Ask your accountant to help and if you haven't got one, I suggest you engage one! The figures you are 'playing' with are significant and a public forum is not the place to 'advise' on your type, or scale, of business!
I understand your point.
I just needed to legally reduce profit
"Needed" ?
Simply work less.