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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4074
Experience:  FCCA FCMA CGMA ACIS
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Hello, I am a self employed artist. Last March I received

Customer Question

Hello,
I am a self employed artist. Last March I received a payment in advance for a large commission. I started the commission in April. The expenses incurred by the commission are about 75% of the paid sum. Because of the timing, the income is in one tax year and the outgoings are in the next. Is there anyway I can rectify this to give a more accurate account of my income in each tax year?
Thank you.
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.
Post the income in year 1 as a creditor. A payment in advance, if it has to be repaid, is a liability. Then it will appear at the year end as a balance sheet item as opposed to part of the Profit and Loss Account. Then in year 2 remove it from Creditors [which clears that element of Creditors] to Sales, post the outgoings to Cost of Sales and the proper profit will emerge in the working year. It's a very common transaction in big organisations as you probably will appreciate.
Simple, as the Mercat in the TV advert would say! I do hope I have helped you with your conundrum.