Hi
My client provides software to various government customers in the UK. My clients invoices the customers every March for the year ahead. They then post a deferred income journal and release journals monthly thereafter.
However for a number of the customers, my client hasn't yet received PO's / signed contracts and so the March 2020 invoices haven't been issued. The custonmers have been allowed to continue using the software as they wait for the various internal processes to approve PO's etc to run their course. My client is 99% sure (based on previous years) they will provide the PO / sign contracts eventually. But if my client doesn't get a PO then there is no chance they will get paid for the use they have allowed the customer to have to date.
Would you accrue this income or would you wait until a PO has been received?
Replies (8)
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When is the year end?
Do they only pay on invoice or is there some sort of regular payment plan that they are keeping to?
If it is probable that the income will be received then accrue it. "Probable" is a judgement call for you, based on the info available from the client.
Is it a limited company?
What does the income/revenue recognition policy say?
I don’t think this is an accounting policy question. The whole point of the question is that the company’s accounting policy must say that sales are recognised when the services are provided. The question here is whether the receipt of the sale proceeds in question is sufficiently certain.
The client may want to write to their MP expressing the huge time inefficiencies government department heads are causing him.
Year in year out.
The more junior staff at the government department then learn the bad behaviour and it becomes ingrained.
Yet other sections of government are issuing edicts on business behaviour.
All cost picked up by tax payer.
Yes accrue and assume the PO will arrive
When I worked in industry we had a massive problem getting PO's from the MOD as they had to be signed @ depot/camp level and then often the next 2 levels up. We were running 5 year rolling contracts and always worked on the assumption the PO would arrive. so invoiced monthly on that assumption.
The PO's always arrived eventually but the money often took a long time