Def/Accrued Income

Journal Entries based on differences at month end

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If a journal is entered at month end for 'example' Deferred income based on the differences between this month and last month (i.e there is never a reversed journal) and the invoice is still in the same position next month, do you defer it again ? (im used to deferring an invoice at the end of the month and doing an auto reverse at the 1st of the month and then starting again the next month, so always 0'ing the control accounts on the 1st of the month.  Ive come in to a company where the accountants did management accounts and they use this method of only posting the differences in the sales,WIP, Def/Acc Income so there are no reverse journals.  Can someone help explain this method please?

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By Cloudcounter
12th Feb 2024 11:10

Surely if the invoice is deferred two months in a row there is no difference between the figures for the two months and nothing to post? Unless I've misunderstood what you are saying.

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By CJJ72
12th Feb 2024 11:16

Hi
Im not sure as I dont understand the method fully. I understand that you only post the differences and not he individual invoices but i the bit i am unsure of is if the invoice remains in the same position for 2 months, do you defer it again on the 2nd month (considering it was deferred the month before)? Sorry if im not explaining it properly..

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Danny Kent
By Viciuno
12th Feb 2024 12:29

By posting the movement you are essentially doing two journals in one. For example:

WIP goes to £120 from £100.

Your preferred method would be to Dr sales £100, Cr WIP £100 and then Dr WIP £120 and Cr sales £120.

The net effect is crediting sales £20 and debiting WIP £20.

WIP increases £20 in both methods but the second one is only one journal.

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Replying to Viciuno:
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By DKB-Sheffield
12th Feb 2024 13:09

I agree... with one addendum...

The important point is that the balance of the control account MUST match to the sum-total of invoices you are deferring (i.e. the listing/ schedule). That is the key 'check and balance'. If it doesn't... whatever method used has been incorrectly applied.

How you get to the closing balance is somewhat irrelevant... whether you post an adjusting 'variance' journal, a full 'all-in-one' journal (with reversals), or multiple journals. It is the control account balance at month end that matters.

The one (well two) question I have is/ are... If you have a senior, why not ask them? If you don't have a senior, why continue with the 'old way' of doing things?

For some control accounts, I prefer hard journals with running balances. My preference for stocks, accruals, and prepayments is (and has always been) to reverse and repost - be it monthly mgt accounts, quarterly reports, or annual statutory accounts. I like the satisfaction of seeing a £nil balance at the start of a period!

Whatever works best for you!

EDIT: By sum-total of invoice... I refer to NET of VAT, not GROSS. I now realise this may be an assumption too far... not for the OP (who clearly has an understanding)... but, for anyone part-reading this in future!

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Replying to DKB-Sheffield:
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By CJJ72
12th Feb 2024 16:29

DKB-Sheffield, thank you for your time on this, really appreciate it, yes, i would much prefer the zero every month method and the only reason I don't change is because I'm not sure that zero'ing all the accounts involved (accrued Income, Deferred Income, WIP, Sales and Mat Pur) would screw the accounts for that month, so I feel I'm stuck using the variance method... which I don't like at all.. but missing the in depth knowledge of this method is why im on here :)

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Replying to CJJ72:
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By DKB-Sheffield
12th Feb 2024 16:41

No problem!

As long as you remember what is included at the end of last month, and remember to include any existing historical transactions in your schedule for next month... zeroing shouldn't affect the accounts at all (if it does... you've made an error).

However, one bonus is... you may find on clearing down that there are some old balances that make no sense (and have not been reviewed for years). Clearing down, and starting from scratch can be enlightening.

Before doing anything, plan it, and discuss it with your line manager, boss, MD... whoever you report to - particularly if you look like having to release accruals from 2014!

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Replying to Viciuno:
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By CJJ72
12th Feb 2024 16:20

Thank you

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