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Sale with a purchase, revenue recognition

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Evening all,

Please could someone assist with how much revenue should be recognised in the below scenario. Two "seperate" transactions but relate to the same individual who appears as both a customer and a supplier

- As a supplier we wish to make a sale of a stock item to customer XYZ for £10,000 + VAT. Sales invoice will be generated for this amount

- At the same time we have agreed to purchase an item from them for £5,000 + VAT (as they are also VAT registered)

 

How do we account for such a transaction and how much revenue should be recognised in total assuming the sale meets all the criteria for revenue recognition?

Can we offset to a clearing account the Account Payable amount of £5000+VAT against the Accounts Receivable amount of £10,000+VAT which will create the following:-

Credit Memo on AP purchase invoice

Dr Accounts Payable   5000

Cr AR/AR Offset Clearing Account  5000

Credit Note on AR sales invoice

Dr AR/AR Offset Clearing Account  5000

Cr Accounts Receivable   5000

Cash impact

£5,000+VAT cash due from XYZ

£1,000 VAT due to HMRC

 

Would the item purchased sit in Inventory at £5,000 to then be sold at a later date?

 

Sorry for so many questions! Thanks in advance

Replies (3)

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By johngroganjga
03rd Oct 2019 08:03

You are overthinking something quite simple. Deal with the initial recognition of the sale and purchase exactly as you would if the customer and supplier were different persons.

The only thing you do differently thereafter is that if the customer pays the net amount only you do a contra between his debtor account and his creditor account. Job done.

Yes of course the purchased item will be in stock at £5,000 until it is sold.

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Replying to johngroganjga:
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By Newbie19
03rd Oct 2019 12:12

My thoughts exactly but I have had differing opinions as others seem to think that because the money in essence is going back to the same person that it should be treated as a reduction in revenue

I didn't agree with this approach and also believe it should be treated as two seperate transactions and perform the contra between the debtor and creditor account if they are indeed paying the net amount

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By Bobbo
03rd Oct 2019 14:11

Refer to paras 23.6 and 23.7 of FRS 102. 23.7(a) looks relevant to this scenario.

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