Accounting for bridal shop..

Accounting for bridal shop..

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Client owns a bridal shop, so has deposits made at the initial stage and then payments on account with final payments for dress/accessories 6 weeks before the wedding.

Refunds are not made.

So is this correct:-

All invoices and deposits for the accounting year totalled

Deposits recognised as income, invoice less deposits received recognised as Accrued Income

Apologies for the thick question!

Replies (7)

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By bernard michael
21st Feb 2013 08:55

How would you intend treating VAT outputs?

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By murphy1
21st Feb 2013 08:56

Cash basis Michael

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By zarathustra
21st Feb 2013 09:43

It depends on your accounting policy for income recognition

But in the situation you have described, I would have thought just recognising the income as received would be a pretty fair approxination of the result, rather than trying to [***] the degree of completion at each stage.

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By George Attazder
21st Feb 2013 11:18

No...

... well not if you're applying GAAP.

The deposits may well be non-refundable if the customer doesn't complete the contract, but if the dressmaker doesn't complete the contract, the law will permit the customer to get their money back.

Deposits are just payments on account. The total amount due should be recognised in line with the degree of performance of the contract, once recognised income exceeds the deposit received, the balance due is an amount recoverable on contracts in SSAP 9 terms; a debtor.

Once the dress has been completed all of the income should have been recognised.

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By MissAccounting
21st Feb 2013 11:19

There was a similar thread to this a while ago for a photography business and I think the general opinion was that a cash based approach was sufficient and not too complicated for the client to maintain a record of.  Some did argue that they should be accounting for the income when the deposit is received however.

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By Anthony123
21st Feb 2013 13:10

Just to be clear

it is unlikely the bridal shop is a dressmaker. When the dress is ordered the shop in turn will be placing an order (presumably with a deposit on their part) with a manufacturer.

When the dress comes in they will pay (most likely a third party) dressmaker to alter it etc or indeed  bride may well pay direct with shop just introducing/facilitating.

So a complete answer might also include how should the deposits paid to manufacturers be recognised? (personally I would go for cash in both instances).

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By George Attazder
21st Feb 2013 13:32

Apologies for my ignorance...

... and reading things into the question that weren't there.

The fact remains, that the GAAP treatment is to recognise income as a contract is peformed.

For tax purposes, profits should be computed in accordance with GAAP. If by the ("I would go for") cash basis, you mean recognise the deposits received (or paid) as income (or expenses) on receipt (or payment), then you would seem to be accelerating taxable profits unduly.

As a matter of bookkeeping convenience, the deposits received (or paid) might initially be posted to sales (or purchases), but at the year-end I'd suggest that adjustments could/should be made to recognise the deposits under unsatisfied orders/contracts as creditors (or debtors) in respect of goods/services yet to be provided (or received).

It's both correct under GAAP and decelerates the tax laibility.

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