Hello,
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?
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You've called it a profit so I think you have answered your own question....
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.
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?
A more interesting question might be whether the whole £52.20 is standard rated.
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.