Loading Profile...
Taxable date for expenses/bills is cash not invoice date
I'm no accountant, but doesn't using the bank transaction date for my expenses mean I'm treating them as cash accounting, and not invoice based?
I'm using Invoice based accounting. When I receive a bill for an expense, with an invoice (taxable) date of say "30 Mar 2008", but the payment transaction (on my bank statement) occurs say "20 Apr 2008" .. Now this may be in a different VAT/tax period.
FreeAgent does not allow me to change the expense date from the date I paid, to the date of the bill/invoice from the supplier .. Doesn't this mean I'm not accounting for the tax at the correct time? I'm guessing this is more applicable when crossing over VAT/tax periods, as it'll throw my accounting out.
Could an accountant maybe clarify the situation?
To get around this, I'd suggest it would be useful if each bank item could have an optional taxable date as well as the expense payment date. By default this would be the transaction date, but would be used when calculating the tax reports for expenses for invoice based accounting.
The terms on the HMRC web-site for cash/normal accounting seem to indicate what I thought ..
I'm using Invoice based accounting. When I receive a bill for an expense, with an invoice (taxable) date of say "30 Mar 2008", but the payment transaction (on my bank statement) occurs say "20 Apr 2008" .. Now this may be in a different VAT/tax period.
FreeAgent does not allow me to change the expense date from the date I paid, to the date of the bill/invoice from the supplier .. Doesn't this mean I'm not accounting for the tax at the correct time? I'm guessing this is more applicable when crossing over VAT/tax periods, as it'll throw my accounting out.
Could an accountant maybe clarify the situation?
To get around this, I'd suggest it would be useful if each bank item could have an optional taxable date as well as the expense payment date. By default this would be the transaction date, but would be used when calculating the tax reports for expenses for invoice based accounting.
The terms on the HMRC web-site for cash/normal accounting seem to indicate what I thought ..
What is cash accounting for VAT?
Using standard VAT accounting you:
* pay VAT on any invoices you have issued, even if you have not received the payment from your customer
* reclaim VAT on any invoices you have received, even if you have not yet paid your supplier
Using cash accounting for VAT, you:
* pay VAT on your sales when your customers pay you
* reclaim VAT on your purchases when you have paid your suppliers
I’m concerned
4
people have this question
I have this question, too!
Tell me when someone answers.
The more people who ask this question, the more it gets noticed.
The more people who ask this question, the more it gets noticed.
-
Inappropriate?You're right, one of the basic simplifying assumptions we've made up to now has been that expenses are paid for pretty much the same day they're incurred - no 'supplies on credit'.
That's effectively cash accounting for expenses - obviously we fully handle the sales invoices side of things - and in fact that works fine for the majority of freelance businesses.
But not for everyone, and we've become increasingly aware that it's probably a simplification too far.
We're planning to introduce the facility to track Bills (that is, incoming invoices) and assign payment explanations against them. We'll have a simple, initial implementation of this fairly soon, which should at least allow you to represent how your situation works accurately.
I’m sorry we're not quite handling this correctly for you just yet.
1 Comment
Add a comment
This answers the question
-
Hi Ed, we're new users to Free Agent and my accountant has just reviewed it and not having the functionality to record/handle invoice accounting was his main concern. It is something we will need as our business expands we expect our associates & suppliers to invoice us. It would be really good to have the same functionality for recording & tracking supplier invoices the same as we currently do for our invoices. Are you in a position to confirm when you plan to implement this please? Thanks, Lynne -
Inappropriate?Thanks guys!
I’m thinking that Ed should be doing something different on a Sunday night!
-
Inappropriate?lynuslynne,
I can't give you a fixed date, but I can confirm we are working on this as a matter of priority.1 Comment Add a comment
This answers the question
-
That's good. As long as it's a planned development then we are very happy. If it could include a supplier invoice payment timeline similar to sale invoicing currently, we would find that very beneficial. I must say that having just finished the evaluation period and signed up, I am very impressed by the solution and it will benefit us greatly as a new start-up. My accountant was new to FA but was also very impressed - his actual words were "I quite like it" which means he loves it but he knows it means less business for him... :-)
-
Inappropriate?Ed,
While I appreciate the solution that the Bill Tracking module provides, I'm not sure that it's the simplest solution to the invoice/cash accounting problem. At least not for me.
I don't really want to track bills, as such - merely to make sure that the bill falls into the correct period based on the date of the invoice not the date on which payment leaves the bank account.
Most (legitimate) retailers will supply an invoice with the date of purchase, but only charge the bank account on the date of despatch, so there's frequently a bit of a gap. Even suppliers collecting by direct debit will have different billing and collection dates (our ISP, for instance, bills on the 20th of the month and collects on 8th the following month). These are not bills I want to track.
To ensure that I'm accounting for VAT in the correct period I would now have to identify those bills with different billing and collection dates, manually enter them (with a contact name) and effectively reconcile them against the bank statement, which is almost a return to the QuickBooks approach I've just abandoned.
I love the simplicity of bookkeeping based around the record of the bank statement. Is it not possible simply to have an adjustable "Billing Date" field on the bank record which, if set, ensures it falls into the correct period (as suggested by the OP) ? Rgds Tim
I’m selfishly hoping for a solution that suits me exactly!
-
Inappropriate?prolibris,
That - an option 'billed on' or 'incurred on' date which can be set earlier than the bank transaction date - is something we've been mulling over for some time.
Our treatment of normal expenses on, effectively, a cash basis (apart from Bills) is mostly 'good enough' for the speed at which most purchases pass through the banking system nowadays. Certainly you won't find that many accountants worrying too much that your weekend purchases appear on the statement as Monday.
The existing treatment is driven to some extent by the desire to keep things as simple as is acceptable from an accounting point of view.
But you're right - it's not strictly correct and I think that before long we'll be adding that option 'billed on' date.
EMPLOYEE
