Sage help please...
Discussion
Quick question if I may...
I'm running Line 50 and I'm just about to start using it. I've set it up for cash accounting (on my accountants advice) and I'm ready to go. Except I want to get it right.
I receive an initial cheque from my customers and then receive monthly payments via standing order.
Where do I enter the payment that I have just received? Further down the line, how do I enter the recurring payments I receive from the SO's?
Yes I know it's very basic but we all have to start somewhere
I'm running Line 50 and I'm just about to start using it. I've set it up for cash accounting (on my accountants advice) and I'm ready to go. Except I want to get it right.
I receive an initial cheque from my customers and then receive monthly payments via standing order.
Where do I enter the payment that I have just received? Further down the line, how do I enter the recurring payments I receive from the SO's?
Yes I know it's very basic but we all have to start somewhere
I'm very flexible how I use it at the moment. What I really want to do is minimise the amount of paperwork I send to the customer.
What will happen is I'll receive a single cheque when the customer signs up and from then on I'll receive regular payments on the 1st of every month by standing order.
Ideally I would like to send them a single annual invoice/statement or whatever and to save on postage I intend to send it out in .PDF format.
If I'm honest I don't understand the difference of cash VAT or not. Better to ask before I make and commit to a big mistake.
I don't even know how to correctly record this cheque I've just received.
What will happen is I'll receive a single cheque when the customer signs up and from then on I'll receive regular payments on the 1st of every month by standing order.
Ideally I would like to send them a single annual invoice/statement or whatever and to save on postage I intend to send it out in .PDF format.
If I'm honest I don't understand the difference of cash VAT or not. Better to ask before I make and commit to a big mistake.
I don't even know how to correctly record this cheque I've just received.
Plotloss said:
Ah voluntarily eh? Might have to pick your brains about that process.
Got to be VAT registered for next year, not looking forward to it at all.
Yup, my sales are all to businesses and I've heard they look more favourably on you if you register voluntarily. Looks better too if you're selling B2B. Hopefully I'll be an expert by this time next year Got to be VAT registered for next year, not looking forward to it at all.
Cash Accounting is a technique devised by HMRC in the UK for smaller businesses (Turnovers under £600.000) which allows them to delay paying over the VAT arising on their Sales until the point in time the cash/cheque/BACS etc is actually received from their customers.
This is actually against the VAT norm which is that VAT is payable in the calender quarter in which the VAT invoice is actually raised, irresepctive as to whether the customer pays in that quarter or not. From a cash flow point of view this can be a disadvantage as you might be paying over the VAT element of an invoice to the VAT man before your customer has actually given you the cash.
The normal assumption in VAT is that you will be raising VAT invoices each time to generate a Sale. This invoice is passed to your customer who, if they are VAT registered themselves, will use this Invoice to claim back the VAT.
In a normal Sage accounting system, each Sales invoice is entered in your Sales Ledger (against each of your customer accounts) and the VAT content will be alocated to the "VAT on Sales" account. This automatically triggers the VAT liability arising on that invoice . When the cash eventually comes in in respect of that invoice, the cash is posted to the bank account on Sage and allocated against that individual customer account in the Sales Ledger. In this sytem, the receiving of the cash is of no importance from a VAT point of view.
Under "Cash Accounting", invoices still need to be issued to your customers, especially if they want to claim back the VAT on what you are billing them. However, you do not have to account for the VAT on that invoice until the customer actually pays you. This does cause complications with the Sage system as it means that what you are paying to the VAT man each quarter no longer ties up easily with the VAT balances showing on your Sage system. Sage will still conmtinue to show VAT liabilities based on ibvoices issued rather than on cash received.
It is Sage that is actually correct. It is the VAT people who have devised, by inventing Cash Accounting, a non-standard hybrid method of accounting for VAT.
That's why I hate it.
This is actually against the VAT norm which is that VAT is payable in the calender quarter in which the VAT invoice is actually raised, irresepctive as to whether the customer pays in that quarter or not. From a cash flow point of view this can be a disadvantage as you might be paying over the VAT element of an invoice to the VAT man before your customer has actually given you the cash.
The normal assumption in VAT is that you will be raising VAT invoices each time to generate a Sale. This invoice is passed to your customer who, if they are VAT registered themselves, will use this Invoice to claim back the VAT.
In a normal Sage accounting system, each Sales invoice is entered in your Sales Ledger (against each of your customer accounts) and the VAT content will be alocated to the "VAT on Sales" account. This automatically triggers the VAT liability arising on that invoice . When the cash eventually comes in in respect of that invoice, the cash is posted to the bank account on Sage and allocated against that individual customer account in the Sales Ledger. In this sytem, the receiving of the cash is of no importance from a VAT point of view.
Under "Cash Accounting", invoices still need to be issued to your customers, especially if they want to claim back the VAT on what you are billing them. However, you do not have to account for the VAT on that invoice until the customer actually pays you. This does cause complications with the Sage system as it means that what you are paying to the VAT man each quarter no longer ties up easily with the VAT balances showing on your Sage system. Sage will still conmtinue to show VAT liabilities based on ibvoices issued rather than on cash received.
It is Sage that is actually correct. It is the VAT people who have devised, by inventing Cash Accounting, a non-standard hybrid method of accounting for VAT.
That's why I hate it.
Cash Accounting is only a big advantage if your customers take over 90 days to pay you. That is the span of a normal VAT return period. If they pay you within 90 days, then you will more or less be paying the VAT after the cash has actually arrived, whether you are on Cash Accounting or not. Obviously, at the end of any VAT quarter there will be some unpaid invoices but they should pay up within the next quarter.
The problem with Cash Accounting is that the circumstances which brought about its creation in 1987 don't exist anymore. There were two main reasons why it was introduced.
Back then, if you issued a sales invoice which subsequently had become a bad debt and had already paid over the VAT on that invoice, you could not reclaim the VAT back from HM C&E unles your customer had actually gone bankrupt or been put into liquidation. Cash accounting solved that problem immediately.
This very restrictive form of VAT Bad Debt Relief was later abolished. All you have to do now is just write off the bad debt in your accounting system and automatically reclaim the VAT.This negates the 1st reason Cash Accounting was invented.
In 1987, most small businesses used very simple cash analysis book methods of record keeping, often based on a simple "Cash in/Cash Out" system. "VAT "Cash Accounting" acknowledged that it was a bit unfair to expect small businesses to keep full blown double entry, accruals based book-keeping and accounting records.
All this has now changed with the availability of cheap computerised book-keeping packages which have more or less rendered the old red "Cash Book" obsolete.
These computeried systems records transactions in the more complex double entry/accruals basis and they have to be "tweeked" to make them produce "Cash Based" summaries for VAT purposes.
The problem with Cash Accounting is that the circumstances which brought about its creation in 1987 don't exist anymore. There were two main reasons why it was introduced.
Back then, if you issued a sales invoice which subsequently had become a bad debt and had already paid over the VAT on that invoice, you could not reclaim the VAT back from HM C&E unles your customer had actually gone bankrupt or been put into liquidation. Cash accounting solved that problem immediately.
This very restrictive form of VAT Bad Debt Relief was later abolished. All you have to do now is just write off the bad debt in your accounting system and automatically reclaim the VAT.This negates the 1st reason Cash Accounting was invented.
In 1987, most small businesses used very simple cash analysis book methods of record keeping, often based on a simple "Cash in/Cash Out" system. "VAT "Cash Accounting" acknowledged that it was a bit unfair to expect small businesses to keep full blown double entry, accruals based book-keeping and accounting records.
All this has now changed with the availability of cheap computerised book-keeping packages which have more or less rendered the old red "Cash Book" obsolete.
These computeried systems records transactions in the more complex double entry/accruals basis and they have to be "tweeked" to make them produce "Cash Based" summaries for VAT purposes.
in response to the original question:
Open a Sales ledger (customer) account for the customer who has paid you, then post the cheque as a customer receipt (bank, highlight current account, click cutomer receipts, post receipt) - this will leave your customer with a credit balance which will be rectified when you raise a sales invoice to them.
Open a Sales ledger (customer) account for the customer who has paid you, then post the cheque as a customer receipt (bank, highlight current account, click cutomer receipts, post receipt) - this will leave your customer with a credit balance which will be rectified when you raise a sales invoice to them.
Eric Mc said:
Will you be using Sage to calculate the Output VAT content on the Cash Recipts or will you be basing your Output VAT on the Sales Invoices?
Sage allows you do both.
Sage allows you do both.
but posting this as just a bank receipt and calculating the VAT on that will make it difficult to keep track of the customer's balance?
Discuss. I'm all 
Smartie - that is the inherent problem with Cash Accounting for VAT. It was devised on the pre-supposition that the trader was not capable or not likely to be using a full blown Sales Ledger system. That meant it was relatively easy to log the cash coming in as a "Sale" and declare the VAT at that point. That is the essence of how Cash Accounting operates. Obviously, the shortcoming is that there is probably going to be weak or inadequate control over Debtors as a result.
It gets complicated when the trader wants to, and is capable of, running a proper Sales Ledger sysem. In these circumstances, for debt control he will want to log his sale by using his invoices as the key transaction with the cash receipt being a "follow up" settlement of teh original sale. His double entry sales system will certainly look to the sales invoice as the key entry and the Sales figure in the accounts will be based on the total of the Sales invoices issued. However, if the trader is on the VAT "Cash Accounting" scheme, he will want the "Cash Received" figure to be the basis of his quarterly "Outputs" figure for VAT Return purposes. If he is running Sage, he will have to ignore his Sales summaries for the Quarter and just pull off Cash Receipt summaries instead.
Some versions of Sage allow you to input the dat on a proper Accruals basis (so your basic accounts will be prepared in the correct manner). However, when it comes to completing the VAT return on the Cash Accounting baisis, Sage can be instructed to compete the return referring to the Cash Receipts and Cash/Bank payments instead of Sales and Purchase invoices.
Cash Accounting makes life so much more complicated. You should try reconciling the year end VAT balance per the accounts against what the VAT returns show - it's a nightmare.
It gets complicated when the trader wants to, and is capable of, running a proper Sales Ledger sysem. In these circumstances, for debt control he will want to log his sale by using his invoices as the key transaction with the cash receipt being a "follow up" settlement of teh original sale. His double entry sales system will certainly look to the sales invoice as the key entry and the Sales figure in the accounts will be based on the total of the Sales invoices issued. However, if the trader is on the VAT "Cash Accounting" scheme, he will want the "Cash Received" figure to be the basis of his quarterly "Outputs" figure for VAT Return purposes. If he is running Sage, he will have to ignore his Sales summaries for the Quarter and just pull off Cash Receipt summaries instead.
Some versions of Sage allow you to input the dat on a proper Accruals basis (so your basic accounts will be prepared in the correct manner). However, when it comes to completing the VAT return on the Cash Accounting baisis, Sage can be instructed to compete the return referring to the Cash Receipts and Cash/Bank payments instead of Sales and Purchase invoices.
Cash Accounting makes life so much more complicated. You should try reconciling the year end VAT balance per the accounts against what the VAT returns show - it's a nightmare.
Edited by Eric Mc on Wednesday 22 November 16:43
Eric Mc said:
You should try reconciling the year end VAT balance per the accounts against what the VAT returns show - it's a nightmare.
Edited by Eric Mc on Wednesday 22 November 16:43
I do it all the time, and I agree, it can make life hardwork. I suppose the thoery is that if you deduct the VAT on SL balances and Pl balances from your VAT balance then it should receoncile, but this assumes that all these items are std rated.
It gets even more complicated when people do not tell SAGE to flag items for VAT once they have completed their VAT reports........................ (but you'll know all about that too!)
Any van driving jobs going...........!!
Smartie said:
BliarOut said:
I've posted the cheque correctly... Thanks!
Are you sure?
It actually sounds like the traditional system might be better for me. Can you change at the end of a financial year?
My company which is a service company works like this.
Each month on the first I receive a series of payments from my customers for support. That's my primary business and it avoids cashflow problems as they pay each month in advance (or annually which gets them a discount but that's for another day) In a nutshell that's my business.
I don't currently offer credit facilities and when I do in the future they will only be for seven days. All hardware or software will be payment with order and the seven day credit will only be for the labour element.
Based on that I would have thought the traditional approach may be better certainly for year one. The only advantage I can see for the cash system is you can delay VAT payment but my business model has been designed to alleviate cashflow issues from the start. I want to avoid the trap of providing free ninety day loans for customers.
Am I thinking along the right lines?
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