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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4722
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Urgent -UK Companies House ltd company abbreviated accounts

Customer Question

Hi, I'm doing my UK Companies House limited company abbreviated accounts (on-line submission) and I use Xero online bookkeeping.

I have a question about how to treat an invoice that relates to a supplier contract that we are currently re-negotiating which should also cancel out a historical liability on that contract.

I have partially paid the invoice and expect the remainder to be credited as part of the re-negotiated contract.

What options do I have for how I show this in Xero and how should I show it in my Abbreviated Accounts ?

Submitted: 1 year ago.
Category: Tax
Expert:  taxadvisor.uk replied 1 year ago.
Hello and welcome to the site. Thank you for your question.

Please confirm if the contract was still under negotiation at the balance sheet date.

If the deal was not settled at year end then I would not make any adjustment for the remainder to be credited until such time the negotiations are finalised and agreed.
At present you have taken the full cost into profit and loss account and the balance sheet is showing amount outstanding.

In due course when the remainder is credited then p&l would take the credit and you would debit creditors to clear the outstanding balance.

Leave figures as they are in Xero book-keeping system and show the remainder as creditor in abbreviated accounts.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 1 year ago.

Hi, thanks for the rapid response. I can confirm that the contract was still under negotiation at the balance sheet date.

If I recognise and the show the full amount of the liability, it will show the company in an unhealthy financial situation, which could jeopardise future business prospects.

So I would rather, if it is allowable, show a proportion of the outstanding liability as a realistic estimate of what I expect the final outcome to be. Is this allowable under accounting rules in any way and if so how would I represent it ?

Expert:  taxadvisor.uk replied 1 year ago.
Bryan, thank you for your reply and for additional information.

If there is a near certain outcome that remainder would be credited, then you can make a provision for it, it is allowable under accounting rules.

Make a journal entry for a realistic estimate and your entries would be
Credit - appropriate expense account within profit and loss account with the credit due
Debit - creditors for expected refund

Keep your correspondence to substantiate and support your entry.

I hope this is helpful.
Customer: replied 1 year ago.

Hi, Thanks fro the further detail. Before asking the original question, I had applied a credit to the outstanding invoice - is that what you mean by 'Make a journal entry for a realistic estimate and your entries would be
Credit - appropriate expense account within profit and loss account with the credit due' ?

However, the date of the credit note was for this financial year, rather than the one I am reporting on, so presumably I need to give it an effective date as of the year I was reporting on, plus the same for the debit ?

For the debit, is that a manual journal entry aginst the same account or is there a 'business transaction' I could do instead ?

Thanks

Customer: replied 1 year ago.

Hi, I need to get these accounts filed with Companies House today.... so if you are able to reply sooner rather than later that would be much appreciated!

Expert:  taxadvisor.uk replied 1 year ago.
Bryan, thanks for your reply.

I used the term provision.. this is used to cover transactions relating to one year and processed in another.
You may have processed the document in current year.. what I suggest is a reversal journal in the accounts for last year.. remember to reverse it in this year to clear the actual credit note posted in this year.

You could leave the effective date as this year because your reversal manual journal with take care of it.

I hope this is helpful.

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