Question re End of Year invoices / work

[JohnJones]

Hi all

It is almost my year end and I have a quick question regarding a couple of orders I have that won't be completed this financial year

I have 3 confirmed Purchase Orders, 1 of which has been invoiced (so appears on my turnover) the work for that cannot be started or completed until the new financial year (customer needed it invoiced, but not paying until the work is complete which is fine)

1 which cannot be invoiced until September (a rolling support contract) and
1 which cannot be started or completed until the new financial year (next week)

For all 3 of those orders I need to purchase goods / services so my question is, am I better to buy the goods / services now in this financial year, or should I wait until 1st April to buy the goods so they appear on next years financials

total value is approx 15k

Thanks

 

[SBlundell]

What does your business do exactly?

It shouldn't make any difference whether you buy the goods / services now or next year - any goods you have not used will be carried forward as Stocks and any unused services as WIP or Prepayments. Essentially this means the cost will be deferred until next year - when the work is actually completed.

Similarly, if you have done no work / not currently earnt any entitlement to the income regardless of the fact it has been invoiced the income from the the first sale you mention should also be deferred until next year (when you do the work itself). The same you would apply with any of the others if they are invoiced now. The rolling support contract (assuming an annual fee was raised last September or thereabouts) should have a proportion of the income deferred until next year (as you've only earnt entitlement to the months completed to date).

I am simplifying for the sake of a forum post however. And 'deferring' costs / incoming simply means they are not recognised in the profit and loss account this year but currently sit on the balance sheet - then they will be released in next financial year (year ended March 2015).

 

[JohnJones]

Thanks Sam

If I add them as 'bills' now they will appear on this month (and this year) P & L statement and as 2 of them cannot be invoiced it would show a large negative profit on the statetment and also the VAT will be taken into account and I assume as it appears as cost of sales then my total GP for the year will be less ?

The Business supplies goods and services for IT, Hardware / Support Contracts / Consultancy etc

I take it that the only difference it may make is to the P & L statement for this current year and GP / NP for this year ?

 

[UK Contractor Accountant]

Accruals and defferals at the year end relating to income and costs is a tricky area and can make a big difference to the declared profit/loss for the year.

You should really get your Accountant involved who has access to all your accounting records.

 

[JohnJones]

I only use an accountant for year end and CT stuff, and they asked me for WIP stuff, so I asked the question above and they want me to take out a pay monthly scheme for 12 months before they will answer

 

[UK Contractor Accountant]

This is year end stuff - they should be doing it as part of the year end accounts preparation procedures.

Unless they are being lazy and just drop the figures you supply into their accounts production software!!!

 

[Bob]

I only use an accountant for year end and CT stuff, and they asked me for WIP stuff, so I asked the question above and they want me to take out a pay monthly scheme for 12 months before they will answer

You need to change your accountant.

 

[JohnJones]

I may just need to find a new accountant, they won't speak to me on the phone either to discuss the fee for preparing my YE and CT, they want to see the full accounts first before giving me a price, they did them last year and were really good

 

[JohnJones]

Just re-reading their terms, the monthly fee is actually to complete the year end and full telephone and email support and is only fractionally more expensive than the fixed fee for completing year end only

 

[Jeremiah@RHJ Accountants]

What sort of accountant does not want to speak to you on the phone to discuss their fee and how they can help you.

Does not sound like a good service to me!

 

[kevin.doran]

Agreed, but...

...don't be hasty. Everyone here would like to pick up new business of course but if they generally do a decent job, you're comfortable with them but simply feel you're missing the 'ongoing support' option perhaps give the monthly fixed fee a try before jumping ship.

 

[Jeremiah@RHJ Accountants]

Not being hasty but surely being able to pick up the phone to speak to your accountant about YE stuff for what would be 15 mins max is not going to result in the accountant losing a vast amount of income.

I think most accountants on here would not mind doing this especially if it is not a regular occurrence

maybe i am in the minority though?

 

[kevin.doran]

We've got no idea as to the terms of engagement though or what's generally been agreed. I'm extremely proactive so i'm not disagreeing with you as a whole, it's just very easy to see one side of the story via a couple of forum posts.

My first port of call would always be to try to work things out with the existing accountant IF you're generally happy with them. Of course, if they wont pick up the phone full stop to talk about the situation the OP might not have a choice!

 

[Jeremiah@RHJ Accountants]

Agree that the OP should speak to their existing accountant, it just seems from the forum posts to be not something that most accountants on here would do.

And the fact the OP has come here to seek advice, does not seem like a good thing for the current accountant, but without knowing the full picture etc.

 

[SBlundell]

I take it that the only difference it may make is to the P & L statement for this current year and GP / NP for this year ?

No that's the whole point - it shouldn't effect the P&L statement until the period in which it relates. If you raise a Sales invoice on the 1st April for April's services that's fine and everything is ok. If you raise a Sales invoice on the 14th March for April's services, the income gets deferred (or excluded from the P&L if you like) until April when it is released. So even though the income is invoiced to the customer, it is not recognised in the Profit and Loss account until it is due. The only difference between the two is the invoice date - the income in both circumstances is reflected in April. Which is why your accountant is asking about these sorts of situations.

The same principle follows for costs - hence why Stock on hand is accounted for at the end of the year as it takes the cost of unsold items into the following period (and is released when those items are sold - such that income matches cost in the correct period).

 

[JohnJones]

I have managed to speak to the accountant now and my question has been answered, so thank you all for your help and advice

The main reason I posted on here was that I hadn't been able speak to the accountant and time is running out

On my system (freeagent) as soon as I invoice a job it immediately appears on my P & L, cost of sales only appear on my P&L as soon as I create a bill, or assign a bank transaction to the relevant category

Essentially for my own P&L it makes more sense to not purchase the goods (and assign to cost of sales / bill) and the management accounts will be adjusted accordingly regardless of which way round I do things

 

[Walkol]

I have managed to speak to the accountant now and my question has been answered, so thank you all for your help and advice

The main reason I posted on here was that I hadn't been able speak to the accountant and time is running out

On my system (freeagent) as soon as I invoice a job it immediately appears on my P & L, cost of sales only appear on my P&L as soon as I create a bill, or assign a bank transaction to the relevant category

Essentially for my own P&L it makes more sense to not purchase the goods (and assign to cost of sales / bill) and the management accounts will be adjusted accordingly regardless of which way round I do things

Rather than worry about when to buy/invoice etc etc just because of the accounting function, just use journals to accrue/prepay/defer whatever it is until the period that it relates too.