Hi all,
Wondering if anyone can help with this....
We have a supplier who has provided materials over the last year or so. They have a good relationship with our boss, and having mentioned that we were struggling to pay, they suggested we could repay over the coming 12 months. I am therefore keen to move the amount owing to them off the P&L and onto our balance sheet to reflect this (and reduce this liability as we make payments). I thought it would be as simple as recoding the entries to the relevant b/sheet account, but have realised if i do that it creates a credit balance in the liability account (other corresponding entry automatically generated being the debit to accounts payable). Also as I go to pay them, it reduces the accounts payable, not the liability.
Can anyone think of an easier way to show this? I seem to be going round in circles!
thanks
Replies (36)
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Accounts payable is a liability- do you have any double entry experience?
I would just record the entries as normal like a supplier who has given you terms.
E.g
Debit cost (P&L)
Credit payables (Liabilities)
You cannot, remove the cost from your P&L, a cost is a cost
When you make payments against the debt the subsequent entries will be
CR Bank (Balance Sheet)
Dr Payables (Balance Sheet liabilities) - This reduces your liability.
When you get the goods do you enter the amount in your accounts as a debt? If so, then as you pay for the goods, the debt is reduced. My guess is you are missing a step. What accounts software are you using ?
Edit -I was too slow. Better answer above.
You could, if you really wanted, credit the purchase ledger by the amount of the loan, (which will in fact be a debit entry) and post this value to another balance sheet code to record the debt, which you will then pay down.
Remember if you do that to leave VAT well alone.
However, I would be tempted just to leave the supplier balance on the purchase ledger and allocate your payments against it as you go. That way everything is up front and clear to everyone, including your supplier.
I'm sorry but exactly what is your role? Hopefully not as the company's bookkeepr as you clearly have no understanding of the basics.I am therefore keen to move the amount owing to them off the P&L and onto our balance sheet to reflect this
This may sound harsh but get yourself some basic trianing.
That's not what (you told us) has happened. Were it to happen, there'd be extra tax to pay.
Just wondering though, say for example the supplier turned round and said "Tell you what, you can have those materials for free, here are credit notes for all those invoices", and then the company said "thanks for that, as a thanks, we promise to pay you £1,000 over the coming 2 years, plus a bit extra if we do well"
Just that I've never come across it, but its a pretty unusual relationship between the 2 parties.
Odd situation I know, hence the question.
That's completely different. They've just given you extended credit terms and you deal with it as a trade creditor.
Or you can treat the invoice as if paid up front with a loan then pay down the loan but that's just shuffling it round the balance sheet, not changing the P&L.
Another option would be to put a chunk of it in prepayments and release it as you pay the supplier, that would change the P&L but that's only correct if you use the materials at the same rate as you pay off the supplier, otherwise it's nonsense.
I see, I took that to be a hypothetical situation, as Tax Dragon pointed out that would remove the cost entirely from the P&L and therefore give you additional tax to pay, it would be possibly the worst way you could try to resolve the situation.
If indeed that is what they have done then you need to apply the credit notes as issued and recognise the gratuities you pay to your supplier as and when you pay then, however make sure you exclude them from your tax computation as they're not deductible expenses, being a payment for nothing.
Treatment would be entirely different if they gave you credit notes. Nothing in your OP says that they did that.Hi,
Thanks, but its not really "extended credit terms" if they have given us credit notes to clear off the invoices is it?
We are not a training ground. You cannot expect us to answer endless hyptotheticals. If, on the other hand, they HAVE provided credit notes, then you have wasted everybody's time asking the wrong question at the start.
If, on the other hand, they HAVE provided credit notes, then you have wasted everybody's time asking the wrong question at the start.
Two points: it's happening on so many Aweb threads now that, if the purpose of the forum is to assist people with real life scenarios, then it's at risk of failing in that purpose (more and more respondents seem to be ignoring these queries);
when did that actually become the purpose of this forum? Nearly every current question in here (there are some notable exceptions) shares the ilk of this one.
If the liability has been credit-noted away, why did you ask how to account for an ongoing liability?
(And I don't think it's stepurhan you should be apologising to - he chose to waste his time replying. Apologise instead to the previous respondents who did not know they were wasting their time.)
The annoyance is because you have left out (at least) two important facts in your opening post.
Firstly, that the supplier has given you credit notes. If they are expecting you to still pay the amount due, providing credit notes is extremely odd.
Secondly, that the supplier is a connected company. This makes the odd arrangement clearer, but opens up other issues.
As Tax Dragon said, it is not me you need to apologise to, it is those whose time you have wasted answering the wrong question. I choose to take time to call you out on this, because I think people asking questions on here need to show basic respect by including relevant details.
Is the supplier VAT registered and not using cash accounting by any chance? If so then crediting a bunch of invoices (allowing them to reclaim the sales VAT) whilst still taking payment for those invoices sounds a lot like VAT fraud to me. Any VAT specialists able to confirm if this is the case?
Is the supplier VAT registered and not using cash accounting by any chance? If so then crediting a bunch of invoices (allowing them to reclaim the sales VAT) whilst still taking payment for those invoices sounds a lot like VAT fraud to me. Any VAT specialists able to confirm if this is the case?
If both are VAT registered then there's no loss to HMRC, only to the customer company who no longer gets tax relief on the cost of the goods.
I think I would conclude it's incredibly stupid rather than fraudulent, but it could be both!
Indeed, if both are VAT registered, then no net loss. If customer not VAT registered however...
I just couldn't think of any other reason (apart from stupidity) to do this. The fact the OP wasn't looking at taking the expenses out of the P & L at least implies they weren't trying to treat them differently in the two companies (remove the sales in one but just move the trade creditor to loan in the other). That said, if customer is struggling to pay, maybe the loss of those expenses doesn't push them into profit anyway. It could reduce the overall CT bill by reducing the profits of the supplier whilst still having a loss in the customer. Also potentially dodgy if they are not treating the balance as a potential bad debt.
I cannot think of any arms length scenario where this would happen?
Presumably the parties are connected?
I've no idea what's happening now.
I thought these folk were just paying late. Now it seems they're not paying at all.
The feast. It's over there. No, wait, now it's over there. Actually it's over there. There is no feast. Wait it's back on, and it's over there. No over there. Not that way, the other way.
It's like Easter! (this joke may only make sense to religious types)
If that's a reference to Easter being on different dates ever year, it's just not true.
It's on the same day every year - the first Sunday after the first full moon after the vernal equinox. Decided right here in Yorkshire at the Synod of Whitby in 664 AD.
I would say that there are diabetic easter eggs, but apparently those are quite bad for you as well.
It does not offend my other half, she just modifies her insulin to deal with the fast acting carbs. In reality the person in our house who objects to Easter eggs is me as imho it is far more cost effective to just buy a bar of chocolate (more chocolate per £1) than an egg.
Never been sure if this aversion is due to my accountancy background steering me to calculating costs by weight /units/etc (Help, I am turning into a Cost and Management Accountant) or the fact that generally I hate wasting money.
It is probably the latter and I am just mean as I also hate Mother's Day, Father's Day, Valentine's Day, think all cards are a waste of money and bad for the planet and am certainly not very enthusiastic about even my own birthday nor particularly keen on buying presents for grown ups at either Birthdays or Christmas.
E Scrooge
Help, I am turning into a Cost and Management Accountant)
--
I see nothing wrong with that - although I tend to squeeze the word "chartered" in there myself :)
Your rule of cost effectiveness applies only if you're buying your Easter eggs prior to Easter, any good scrooge or cost accountant knows to wait until at least the first Wednesday after the first Sunday after the first full moon after the vernal equinox to buy Easter eggs.