We have made a purchaes with a supplier and the amount we paid the supplier is 1p above what the supplier shows on their invoice.
As a result when we tag the payment from our current account to the supplier account and then pay that purchase with that payment on account we are left with a 1p balance on the supplier account.
I would like to know the best way to write off these types of overpayment so that everything balances again.
Any help would be much appreciated.
Edit: I have considered the following options, please let me know if either is a viable option. I wouls also like to know what you would do it it was the other way around and you paid under by 1p of what the invoice showed, how would the invoice balance on the supplier account so there is nothing owed on the invoice?
On the purchase in question you would create a line and call it something like Overpayment Adjustment and enter the value as 0.01 to make the adjustment for the different from the payment made compared to the invoice from the supplier. This however would mean the purchase invoice you create will not match the actual invoice exacly, although it would not impact anything such as VAT and it would simply balance out that 1p difference without he need to have it showing as a pre-payment on the supplier account.
Similar to number 1 accept you would create the purchase to exactly match the invoice valus then tag the payment made from you current account / credit card account to the supplier pre-pay. Then you pay the purchase invoice from that pre-payment leaving the 0.01 on the supplier account.
To balance it you can create another purchase or called Overpayment Adjustment and pay this with the pre-pay balance, which would make it 0.00 again so all is balanced.
I’m not sure how it works for a limited company, but for myself as self employed, for the sake of a few pence each way I’d just treat the difference as drawings - I’d go to the supplier’s page, view all payments, find the one that is showing as part unallocated and “refund balance” to my drawings account. This essentially makes it so you’ve paid the supplier in full and taken the spare penny out of the business for personal use.
If it were the other way round - I’d paid a penny too little but the supplier was still happy to write it off - then I’d handle that by either adding a -0.01 line to the purchase or making a “reduce unpaid balance” credit note against the original purchase. This feels better than “paying the difference” from drawings as it means the accounts reflect what the supplier actually charged you in the end (they are the ones who wrote off the penny here) rather than what they originally invoiced, but there may be an argument the other way if it’s for something like imported goods where you want your accounts records to line up with what you told customs.
Thanks for your reply. I am looking at it as a limited company and there is no Proprietor Drawings account. There is a Director’s Loan account. Can you use the Director’s Loan account in this way, unless anyone else has any ideas?
The issue is the supplier has taken that overpayment, although it is just 1p and they will obviously not refund it, but I need a way to write it off so the supplier account shows 0.00 again.
How about paying the overpayment on the supplier to the Director’s Loan account then tagging it from the Director’s Loan account to something like 7009 Adjustments in the Overheads category. Would that deal with it?
It is similar to what @ian_roberts said
I’d go to the supplier’s page, view all payments, find the one that is showing as part unallocated and “refund balance”
Refund to your Directors Loan Account as you wont have a drawings account in a Limited company
You would then record a Money In transaction to and tag to"3100 Proprietor or Partner Drawings" to correct your Directors Loan Account balance.
Thanks for your reply. If I do it that way though it leaves the 3100 Proprietors Drawings account with a negative balance. Over time this goes up and waht happens to that figure on that account, does it affect anything like any of your balance sheet or profit and loss?
Would a simple solution not be to just create a purchase for the supplier for the 1p and then pay it with the 1p balance that is showing on the suppliers account?
Since the payment is money spent and you won’t get it back it can just be treated as a purchase can it not? It would then balance the supplier account.
Hi, If having made a small underpayment to a supplier who is happy to write the amount off, I would class it as a purchase discount received and debit that journal at the time the payment is allocated.
i.e Credit payment to bank, debit supplier and debit discount received to balance the transaction.
Again if I had erroneously made a small overpayment I would credit the amount to discount received. This should then adjust purchases on the P&L report.
Thanks for your input. For underpayment. How can you credit your bank account? Unless I am misunderstanding what you are saying.
Also I do not know what you mean by debit supplier and debit discount received.
For overpayment. What does credit the amount to discount received mean? Where do you debit it from and credit it to?
All I see on the chart of account is Discounts Taken and Discounts Allowed.
Would you be able to explain it clearer for me if possible?
Edit: For the overpaylemt I have done the following.
Addeda a line to the purcahse invoice I created for 1p and put it under category Discounts Taken. This made it so that 1p was owed on the purchase invoice.
I paid this 1p with the credit that was held on the suppliers account. This made the suppliers account show 0.00 again and added -0.01 to 5009 Discounts Taken on the chart of accounts. This now makes that 1p I overpaid show as a purcahse on the profit and loss sheet, which seems correct since I will never see that 1p again and I have spent that 1p, so it is a purchase although I have nothing to show for it. Is this correct?
Instead of using Discounts Taken, I can create another account in the chart of accounts under purcahses called Minor Adjustments and pay the overpayment to that account and have the same effect right?
After speaking to my accounting he agrees this is a good way to do it to keep things tidy.
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