Hi Guys, I’m really struggling with a sale and cant figure out how to account for it properly.
I typically bill people for monthly services.
One client wanted it all in a single invoice.
So i created an invoice for £X
They have paid it
And i marked it as paid.
However, the 12 months span across multiple tax years and i certainly don’t want all of it attributed to the previous year as there are outgoings that essentially have no sale associated in the same tax year.
So, how do I spread this single invoice over 12 months? So it only shows say 4Months in one tax year and 8 in the next… (As thats in reality, how the income is spent)
Thanks
Graham
You would do this with a pair of journals, typically either side of your year end. The idea is that you move the relevant portion of the net value off the P&L income code and onto a “prepayments” code on your balance sheet at the end of this financial year, then move it back the other way at the start of the next year so it counts in that year’s P&L instead.
If you don’t already have a prepayments code on your chart of accounts you may need to create it - it needs to be under the assets and liabilities section, somewhere close to the “accruals” code that hopefully already exists.
Now suppose for the sake of example that your original 12 month invoice was £1200 (ex VAT, if that’s relevant). The you would create a journal dated the same as the invoice that does debit general sales and credit prepayments for £800, tick the auto reverse box and set the reversing date to be the first day of your next accounting year. This will apportion £400 to this year’s general sales and £800 to next year, with the £800 showing as a liability on your year end balance sheet.
If you charged VAT on your invoice then you still owe the full £240 VAT to HMRC now, based on the date of the VAT invoice or payment (accrual or cash accounting respectively).