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P/L or Reserves

Profit on data checks. Where should this be posted?

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I currently work in the recruitment industry and have a query regaring how we should treat a small amount of profit.

When a candidate is recruited by one of our customers, the candidate needs to complete a DBS application. We have the capacity to process this DBS for them at a cost of £50.80 (net of VAT), or £52.16 including VAT. However, we charge £52.20.

Now, we post the income and the cost to the SFP rather than P/L. However, we're left with £1.40 (52.20 - 50.80) of profit. Should this be posted to retained earnings rather than transferring to P/L?

Replies (5)

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By WhichTyler
19th Jul 2019 16:52

You've called it a profit so I think you have answered your own question....

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By johngroganjga
19th Jul 2019 16:55

The clue is in the word "profit". It belongs in the profit and loss account, and nowhere else.

The only interesting question is whether to post £52.20 to sales and £50.80 to cost of sales, or just post the £1.40 profit, but you don't seem to be there yet.

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Replying to johngroganjga:
By Wilson Philips
19th Jul 2019 17:05

Another interesting question is whether the £52.20 is VAT-inclusive or not.

I'm also interested in where the figures come from. The standard fee for a DBS application is £44 - suggesting that the charge for completing the form is £6.80 plus VAT (which tallies with the VAT-inclusive charge of £52.16). Surely, therefore, the profit is at least £6.80?

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Replying to Wilson Philips:
By lionofludesch
19th Jul 2019 20:11

A more interesting question might be whether the whole £52.20 is standard rated.

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By Tim Vane
19th Jul 2019 20:24

I agree with the above. My first thought was that it looks like the VAT is not being handled correctly. Better sort that out first.

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