Unpaid Invoice Accounting Entries

DermotFlanigan

We recieved an invoice of £1200 in January for 12 months business rates. Its paid by 10 monthly DDs. The invoice remains unpaid but we want to recognise the 100 a month in the management accounts. Whats the double entries for this?

longforgotten

You could put the whole invoice to prepayments , debit prepayments, credit creditors with £1200. Then each month, for 12 months, reduce prepayments by a journal debiting rates with £100 and crediting prepayments with £100.


The creditor of £1200 would then be reduced by the 10 d/d's, debit creditors and credit bank account each month by £120 until creditor is nil.

zygurat789

longforgotten wrote: »

You could put the whole invoice to prepayments , debit prepayments, credit creditors with £1200. Then each month, for 12 months, reduce prepayments by a journal debiting rates with £100 and crediting prepayments with £100.


The creditor of £1200 would then be reduced by the 10 d/d's, debit creditors and credit bank account each month by £120 until creditor is nil.

Are yes bookkeeping.
Credit the local authority account in the purchase ledger with the invoice amount with a debit to prepayments account in the nominal (general) ledger.
Each month the £120 DD will be credited in the nominal ledger bank account and debited to the local authority purchase ledger account. Thus expunging the debt in 10 months
Each month create a journal entry crediting the prepayments account in the nominal ledger with £100 and debiting the rates account in the nominal ledger with £100. Thus increasing the charge by £100 to rates each month.

As the original post but with a little bit more detail for those who are not quite so au fait with bookkeeping

DermotFlanigan

How can it be a prepayment if it hasn't been paid? A prepayment shows on the balance sheet as an asset so how can this be if it is unpaid?

longforgotten

The debt is reflected in creditors as £1200 owed to the council.
The prepayment is an accounting entry that reflects the fact that the invoice relates to 12 months and you want to spread the rates over that 12 months and you do so by reducing the prepayment on the Balance sheet by moving £100 to the profit and loss each month.


Think of it this way. I receive my rates bill in March 2014 for £1200 but it relates to the year ended 31 March 2015. If I did a profit +loss accounts for the month of March 2014 it should not show any monies re: that invoice for £1200 because none of it relates to March 2014 but the Balance sheet as at 31 March 2014 it will show a debit of £1200 in prepayments and £1200 in creditors due to Council.