Recording a breakages allowance

[Ritchiec80]

Hi

My wife rents out a sweet cart and at the time of booking takes a £20 breakages allowance which is returned once the hire is complete if everything is OK. What is the best way to record this on my accounts when it comes into my account as my invoice may only be for £139.00 but £159.00 is paid by the client and obviously I don't want the £20 to show on my accounts as taxable. I thought that a journal entry might be the best way but think I've done it wrong as it seems to be showing as income. I'd set it as Owner investment Debit £20 and Business Account credit £20. Any help would be appreciated.

Thanks

Ritchie

 

[Energise Accounting]

you need to show the £20.00 in the balance sheet as a security bond.

 

[Ritchiec80]

Thanks, what is the best way to do this? I'm a beginner

 

[kevin.doran]

What software are you using?

 

[Ritchiec80]

Wave Accounts

 

[Energise Accounting]

The 20.00 could be shown as
DR Bank A/c
CR Security bond A/c
you may have to create a security bond a/c in the creditors section on your balance sheet I am not sure about wave so cannot give you a nominal to use. or you could just create another bank a/c for the use of the deposit on your accounting software.

 

[Ritchiec80]

Thanks, would that account be created as a liability or as an expense? In wave I have the option to create an Asset, Liability/Credit Card. Income, Expense or Equity.

 

[Bob]

Liability

 

[Ritchiec80]

Thanks! When I give this back to the customer, it will be debit Security Bond and what do I credit within the journal transaction?

 

[Scalloway]

Cr Bank
Dr Security Bond

 

[Ritchiec80]

My business bank account?

 

[Scalloway]

If you are repaying the bond to your customer you credit the bank account the payment comes from.

 

[Ritchiec80]

Thanks, I was just worried if I added it back to my bank account that it would be classed as taxable.

 

[Scalloway]

You are refunding money you have previously received so the transactions cancel out and have no effect for tax. Any deposits held at the end of you financial year will appear in your balance sheet, not your profit and loss, so do not affect tax in any case.

 

[Ritchiec80]

Thanks, sorry for all of the questions! One last thing once the deposit has gone back into your bank account would it have to be record that it has then left the business account i.e. returned to the customer?

 

[Scalloway]

Yes you should record what the payment is for.

 

[Ritchiec80]

What would it come under as it's not an expense is it?

 

[Scalloway]

You should credit the sum received on your accounts as a balance sheet liability. The refund debits this account reducing it to zero.

 

[Ritchiec80]

So in summary the £20 deposit would go into the journal as DEBIT Business Account CREDIT Security Bond. Then when I return it will be DEBIT Security Bond CREDIT The Customer when it's paid back what would the credit the customer part come under? An expense? And last of all when I initially make out an invoice should it include the amount for the hire say £120 plus the Security bond making the invoice £140? or only the hire part?

 

[john1989]

When you pay the customer back you credit the bank.

 

[Scalloway]

I would add the £20 security bond to the invoice and do a credit note when it is refunded.