Accounting for Liability for % of a received fee that must be paid to others

Accounting
1

I could not find the answer to my problem in the help or the knowledge base so I asked www.openai.com GPT4. I have now started to act on this advice and it certainly seems to work.

Does anyone agree or disagree with this or suggest a way to make the process a little easier.

I have asked the AI a huge range of questions, on a diverse range of topics, over the last few weeks. I was surprised to find it was quite happy to answer this one. Note its important to put plenty of detail. In the question… Often either re-asking a modified question or a follow up. Question is needed. GPT 4 (rather than GPT3.5) is noticeably better but can only be accessed with a paid pro account

Question:

I am the treasurer of a small charity. The charity receives fees x% off which must be paid to others. Accounts are kept with the free online accounting at www.quickfile.com. How should I account for that x% liability in the accounts

GPT4 Answer

As a treasurer, it’s important to keep your financial records accurate and up to date. To account for the x% liability, you’ll want to use the accrual accounting method. Accrual accounting records financial transactions when they’re incurred, rather than when the cash is exchanged. This ensures that your financial statements reflect the charity’s financial position accurately.

Here’s how you can account for the x% liability using QuickFile:

  1. Create a new account:

a. Go to the Chart of Accounts (under ‘Reports’).

b. Click on ‘Create a new account’ at the top right corner.

c. Create an account called “XX Liability” and set the category as ‘2300 - Other Creditors’ (or a similar category that suits your needs).

  1. Record the fees:

a. When you receive a fee, create a sales invoice for the full amount.

b. Allocate the payment received to this invoice.

  1. Record the x% liability:

a. Create a journal entry to record the liability (go to ‘Reports’ and then ‘Journals’).

b. For each fee transaction, debit the “XX Liability” account by x% of the fee.

c. Credit the “Mooring Fee Income” account (or a similar income account) by the same amount.

  1. Pay the liability:

a. When it’s time to pay the Canal and River Trust, create a purchase invoice for the amount due.

b. Allocate the payment to the “Canal and River Trust Liability” account.

This method ensures that your financial statements will reflect the liability accurately and help you track the amounts due. Make sure to review your transactions periodically and consult with an accountant if you have any questions or need further guidance.

2

Hello @Whitchurch_Shed

GPT4 may be good for reference but, I would always recommend seeking guidance from a registered accountant to be sure. I would not use AI as a replacement (yet).

3

I know that is what Is sort of correct to say but I have been doing accounts of various sorts for many years and after the first year never used an accountant.

4

Hello @Whitchurch_Shed

The QuickFile support team are not registered accountants and are unable to answer your query but there may be someone in the community who reply’s.

I have changed the tag to reflect this (How to - Accounting)

5

Just my 2 cents, but before you get into how to record it in QF you need to understand the context.

You refer to the charity receiving fees… Charities usually receive donations and the rules are different if the income comes as part of a trade rather than a donation.

It also depends what the % split is for and why. If I had a deal with your charity where I go out collecting for you and you agree I can keep 25% of everything I raise the rules are very different from say the DEC. Who run a TV appeal and then split what they raise between oxfam, save the children etc

The structure and background is much more important to get clear (which is why an accountant is so important) and anyone who has given an answer on the basis of the information provided hasn’t really understood the question

6

Are you expected to work out the fees due or are you invoiced for them?
If you’re invoiced then you only really to worry about accruing for unpaid fees at year-end. Assuming you collect all these fees in one line in your accounts, then at the end of the year, work out the relevant amount due as a percentage, reduce it by any fees you have been billed for, and create a journal for the remainder which is yet to be paid. You will need to debit whichever code in the P&L you use for the fees, and credit accruals, remembering to reverse it out when you are billed.

If, on the other hand, you have to keep track of the fees due and pay them over periodically, then you would do a similar thing but not reverse the journal. You would only need make the entry once a month, say, or however often you are required to pay the fees. Calculate the percentage and again raise a journal to debit the P&L with the amount due and this time credit either Other Creditors or a separate account in the same range. Then when you pay the amount over, simply tag the payment against the creditors account.

You don’t need to raise an entry for every transaction.

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