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When to recognise supply of services

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We have a client who invoices for training services.

They raise their invoices in advance (i.e. 2 months before the training when the training is booked). In the bookkeeping this shows as a sale and VAT due (as they have raised the invoices). We have come to do the year end and asked the client for a list of sales invoices that relate to services that will be performed after the year end - as they need to be recognised in the accounts during the period that the services are performed.

The client is arguing saying that they should be recognised when they are invoiced as they are non-refundable and the client is committed to paying the invoice.

My argument is that they need reducing out of sales and shown as a liability - am I being thick? How do others advise their clients to process items such as this in the bookkeeping? Raise a quote then convert to a sale when the service is performed? Or raise a sales invoice but then manually adjust in the accounts process?

thank you

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By johngroganjga
13th Sep 2019 15:54

What accountancy training and / or qualifications does your client have?

Ask them what would happen if they could not put on one of the training courses due to illness or whatever. Would they then be telling the customers that they could not have their money back, and would they expect to prevail in court on that point?

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By ireallyshouldknowthisbut
13th Sep 2019 16:04

Id just insist the invoice description line contained within the invoice showed the date of the training, and then it ought to be trivial from the GL report to identify the prepaid income for the year end accounts.

Client is clearly wrong, you could if you wanted perhaps explain the matching concept under GAAP, and that accounts try to measure economic activity, not transaction dates.

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By Moonbeam
13th Sep 2019 16:08

I bet they don't pay their trainers in advance, so unless you do a prepayment adjustment salaries won't match with the fees.
What accounting concept does the client have in mind? None?

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Culverwell Venge
By Culverwell Venge
14th Sep 2019 12:43

Guidance can be found on FRS 102 Section 23.

Even though it is probable that your client will receive an economic benefit and the revenues and costs (associated with this receipt) can be reliably measured, your clients argument does not apply here since the underlining transaction(s) have the same substance i.e. their billed clients only have a 'real' obligation to pay after training is performed which is the same time the trainer must recognize revenue assuming they are once-off trainings.

There is a number of ways to run this through the books with my preferred way being:

1. On raising of invoice
DR Trade receivables
CR Deferred/Accrued Income
CR VAT
To record the raising of the invoice.

2. Upon performance of the training
DR Deferred/Accrued Income
CR Training Revenue/Sales
To recognize the revenue and fulfillment of the training obligation.

3. Upon subsequent payment by the trained clients
DR Bank/Cash
CR Trade receivable

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