Recording a complicated accounting issue

Discussion in 'Exams and Studying' started by Masimo Kazachin, Oct 17, 2016.

  1. Masimo Kazachin

    Masimo Kazachin

    Aug 10, 2016
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    How do we handle an accounting records errors caused by miscommunication. So, the boss provides services to its employees on a friendly rate. That is, he provides them services on half the normal price. He thought the accounting office knows about it. However, the accounting office records each visit on a full paying prices. The money is not yet received. Since the employees have to pay, it can be considered a revenue to come. But does the "thinking" matter at all now. Are we at loss or gain? I mean, the service is delivered but income not yet received. And when it does, is it a loss or a profit?
    Masimo Kazachin, Oct 17, 2016
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  2. Masimo Kazachin

    Fidget VIP Member

    Jan 6, 2013
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    ha ha! Alas, there is no accounting for miscommunication! :D

    But, there are ways to fix things in situations like your scenario. There's a couple of ways you can account for it. You can treat is as a 'discount allowed', or 'staff discount' or whatever you want to call it and record the full amount *and* the discount allowed, or you could treat each one as a brokered sale ie at a price agreed between the two parties if there isn't a standard discount, and just record the agreed amount.

    Because the boss never told accounts about the discounts then accounts dept will be overstating revenue (debtors). So you just have to work out the amount, then do a correction journal to reduce debtors and take the hit in the P&L (discount allowed), and that will sort it out. Depending upon what the set up is, you might have to do a line for each debtor account affected but you can just plonk the total hit into the P&L.
    Last edited: Nov 6, 2016
    Fidget, Nov 6, 2016
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