I am a reseller of web hosting and domains. I need to clarify that i’m entering my domain purchases to the right category. At the moment i put it all down to Hosting Fees and IT Consumables. Is this the correct category or would General Purchases be better.
“Hosting Fees” would be what you pay for hosting websites/email for your own business, but if you’re buying domains or hosting packages to resell to your customers then that would be “general purchases” (or some other code in the 5xxx range so it shows as a cost of sales on your P&L rather than a general overhead).
The rule of thumb is that “general purchases” are for things you buy that can be directly attributed to a specific sale, whereas overheads codes are for things that are part of the general running cost of your business as a whole. I run a retail shop so in my case for example bottles of cleaning materials I buy to clean my shop would be “cleaning” but the bottles on the shelf for sale to customers are “general purchases”.
Many thanks Ian for your reply.
Unfortunately i’am unable to change the purchases i have already entered to General, as they are locked due to VAT return locking them. Will this create a problem?
You might be able to use the bulk recoding tool (click through to the “hosting fees” account from P&L or chart of accounts, tick the ones you want to change, then “move to new code”), or just journal the total across as part of your end of year process - it won’t change your final net profit bottom line, it just moves things from overheads to cost of sales (so gross profit goes down but overheads also go down by the same amount).
@surfpointweb you are right you cant amend journal entries one the CAT return has locked them.
You can add journal entry to transfer charges to the correct nominal code (category)
You can also create specific nominal codes relating to what you want to be able to report on.
E.G. “Customer Hosting Purchases” and “Customer Hosting Sales”
The advantage of not having everything lumped in general sales is you can see from your reports if you are charging correctly and profiting from different areas of your business. What you probably don’t want to do is have to many nominal codes it can get messy. Try and focus only the main functions.
In our case we are an IT company I want nothing in General Sales and Purchases as this is the default I want to ensure our staff are categorising correctly so we have a few specific entries.
You can’t amend invoices (on accrual accounting) or payments (on cash accounting) that are locked by a VAT return, but journals are only locked by the year end process.