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bigduckontax, Accountant
Category: Tax
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My company is a credit insurance broker. our income is received

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My company is a credit insurance broker. our income is received on a monthly basis from the respective insurance company that we have placed the policy with.Our agreement with each insurer is that we are not entitled to receive our commission until our client has paid their monthly premium to the insurer.
My question is "should our income be treated as if we have received the entire commission for 12 months, or should it be treated only when we are entitled to the commission and we actually receive it"
Hello, I'm Keith and happy to help you with your question.

Well in theory you should post commissions to debtors and clear debtors as you receive the moneys. However, life is short and the art is long as they say, and this will inevitably leave you with bad and doubtful debts at each year end with appropriate allowances and write offs in the accounts.

I would be inclined to post as you receive the cash; debit bank/cash, credit sales. After all, over the years, the flow will smooth out. It's rather like estimating telephone and utilities charges and putting them through the books at each year end. Why bother, they come in every quarter and again will even out. These are rough and ready twists of the spoon to stop the treacle running off so to speak, but if you apply the principles consistently I can see no problem using the simpler treatment. VAT will also need to be accounted for on a cash basis if your organisation is registered, but I assume that you are aware of this requirement.

I do hope I have eased your mind and pointed you in the right direction.
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Thank you for your excellent support.