Accounting for an Annual Sales Invoice

[Kevin Gaunt]

I have a new consultancy firm. I have annual agreements with my customers and I want to invoice them once per year at the start of the agreement. They then pay me with 12 standing orders in the subsequent months. Can anyone tell me how I should account for this, since I do not want all of the sales to go into one year, especially if I sign them up towards the end of the year. I assume it's the reverse of accruals/prepayments for supplier invoices where nominal postings are used to get the costs in the correct months, but I can't quite work it out?
Thank you in advance.

[ElliottRoss]

Hi Kevin

You are correct in your line of thinking of accruals/prepayments. However, you may want to create a GL code in Current Assets called "Deferred Income" and use this rather than the Acccruals account. This way, you can see exactly what income you have deferred.

For example, if you invoiced a customer for £120 in Month 1, you would;

Dr: Sales
Cr: Deferred Income
Value: £110

Then, for each of the following months, you release the income to the P&L:

Dr: Deferred Income
Cr: Sales
£10

It may look strange having a Credit balance in a Current Asset but this is acceptable. Also, it will make it easier for your acccountant to see what is going on.

Kind Regards
Elliott

[accountsnfinance]

Hi Elliot,

You have definitely pointed in the right direction but there is a slight correction to the accounting entry you have suggested.

In the 1st journal, it needs to be:

Dr: Customer Account
Cr: Deferred Income Account

Above entry will show the customers in debtors list and that will be credited every time money is paid in by customers

Dr: Bank / Cash Account
Cr: Customer Account

Now the sales relevent to the period will be transfered by another journal as you have suggested.

Dr: Deferred Income
Cr: Sales

This way, deferred income will get reduced every month with corresponding sales.

B.Rgds,
Raj

[Kevin Gaunt]

Thanks ever so much guys. Problem solved.:)

[bbbbb]

Will you be registering / have you registered for VAT?

[Batra Ventures UK Limited]

Not sure why nobody mentioned before, if you are taking more than 4 instalment payments for one single payment, then you need to I THINK register with FSA or something.

[David Richards]

Will you be registering / have you registered for VAT?Good point. There are special rules regarding invoices for 'continuous supply' of services. See VAT Notice 700 section 14.3 (http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_CL_001596#P1107_91193) for details of what the invoice needs to say and when the VAT has to be paid to HMRC.

[David Richards]

Not sure why nobody mentioned before, if you are taking more than 4 instalment payments for one single payment, then you need to I THINK register with FSA or something.I guess that you're thinking about credit. The OP isn't talking about offering credit, but invoicing for a continuous supply of services.