Introduction of accounting date when creating purchases and sales invoices

1

Dates are very relevant when it comes accounting for transactions and reporting.

Dates that transactions occur in some cases vary from the accounting date. when such exist, care must be taken in order not to generate reports full of errors, as it impedes the quality of data available for management decision-making.

Let look at the illustration below

ABC Company Ltd (hereafter referred to as ABC) is an incorporated company. In order to eliminate interruptions of power outage (finished prepaid), and lower the burden of upfront payment for electricity prepaid, it uses postpaid electricity meter.

In the month of January 2022, ABC used electricity of USD 37,000.00. The bill was issued to ABC on February 13, 2022 with due date on February 27, 2022 (14 days credit).

Accounting for the above transaction in Manager.io
By entering the transaction as a purchase invoice, the issue date will be February 13 and due date on February 27.
When a report is generated for January 2022, it excludes the electricity consumption of USD 37,000 by ABC.

Capturing the expense to reflect in the correct accounting period
In order for the expense to be captured in January, the issue date would have to be adjusted downwards to January 31 and the due date adjusted upwards to February 27.

This distorts the data being inputted. The record in the Accounting software differs from the data on the source document.

In as much as the above adjustment yields the required result, steps must be taken to resolve the issue.

Recommendation
Creating accounting date in addition to issue/transaction date will eliminate the above, making the financial information accurate and reliable.

When such is done there wouldn’t be the need to adjust dates upwards or downwards.
Transactions will be entered on the date they occurred or invoices received and accounting date used to properly present the transactions.

Thank you.

@lubos

2

I see no need for such a complication. Ordinary accounting under the accrual system would use journal entries to record accrued—but not yet invoiced—expenses. Then appropriate adjusting entries, payments, or purchase invoices would be entered, depending on how the rest of the scenario occurred.

This is a very common situation.

3

The situation I just indicated is one of many that occur on monthly.

Goods were supplied to ABC in January for resale. ABC sold the goods in January. however invoice was received on February 5 from the supplier. The contract says, payment is to be made 30 days after invoice is received for goods received from a supplier.

Assuming the company receives about 100 or invoices for purchases in a month from different suppliers.

Can I apply same to the above situation

4

@Yahaya, your second scenario is a completely different situation. No accrual entries are necessary. Your sales invoice would post the income and transfer the cost of goods to the Inventory - cost expense account. If you did not have enough inventory in owned stock, Manager would automatically await additional purchases or production and then make the transfer.

5

We seem to be facing a similar problem dealing with tax in UAE.

For example: We close our books by 5th or 6th of each month, and we lock the periods. What if a supplier gives us an invoice pertaining to the previous month after we have closed our books? This happens more often than you think.

If our VAT filing is done quarterly (example: Nov’21 to Jan’22), we need to submit our VAT filing by 28th of Feb’22. On Feb 10th we receive a tax invoice from a supplier dated 26th Jan or so on. We will enter this invoice in Feb’22 period, but this will be missed out from our VAT report. we will lose out on the input tax for the above transaction, as we will not be able to claim this in the next filing too (i.e. Feb’22 to Apr’22) as this is a Jan’22 dated invoice.

So, I recommend we have 2 date fields:

  1. Posting date (which is set to today’s date by default.)
  2. Document Date (which is the actual invoice date)

So when we do our VAT filing reconciliation, we can filter date based on “Document Date”.

6

Indeed very common and should not be a problem either way. In our case we are happy just to enter the invoices and payments in subsequent periods and just in description keep the reason for the invoice and payment such as electricity bill January (when invoiced and paid in February). However, it is also common that for example you do not want the accruals to remain in the accounting system for another period. In such case best practice is to use a reversing entry as explained at:

7

This used to work when we did not have VAT filing. We would use the obvious route: pass an accrual entry, and then reverse it the next month once the actual invoice is booked.

But what about the VAT reporting aspect of this? Accrual entries are not part of VAT filing, so we need to wait for the actual invoice to be booked.

8

Yes, so if you use the reversal method you still would need to create the new Invoice and Payments. For VAT filing as you rightly state this is about actuals. Now that you have the VAT receipt – you can adjust for the VAT now. You are still entitled to that VAT reclaim.

9

When you run the TAX Return Form (From 01/11/2021 to 31/01/2022), this Feb’22 transaction will not be shown.

10

No it won’t. You asked about VAT. You can only reclaim if you actually paid it and that has only been the case in February 2022.

11

VAT is payable on invoice booking and not on the payment made to the supplier towards the earlier mentioned invoice in UAE.

12

Yes, even so the real Invoice was in February.

13

@Yahaya Many tax jurisdictions provide adequate time to complete returns. We have until the 15th of the month after the month in which a taxable supply happened in my country to submit tax returns for that supply.

If it helps, I recommend creating a custom field to capture the Document Date and explanation.

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