"Double Dating" transactions?

[David Harrison]

----- Original Message ----- 
From: "Bill Wisse" <wiswp at niue.nu>
To: <gnucash-user at gnucash.org>
Sent: Thursday, September 02, 2004 12:54 PM
Subject: Re: "Double Dating" transactions?


> On Thursday 02 September 2004 05:36, David Harrison wrote:
>
>> To be honest, I wasn't trying to get into an arguement about this, my 
>> goal
>> was to help. This is a very difficult subject, with many different 
>> possible
>> scenarios.
>
> Thank you for helping David and no ,we are not getting in an argument. :-)
>
>
> As I said before, it is an interesting question. :-)
>
> Let's look at it again and break it down.
> At the end of the month I send an invoice and receive a cheque.
> Because I'm selfemployed the deducted tax is called "withholding tax". 
> Every
> private contractor here, who does some work for the government, is 
> subjected
> to that. (BTW we only pay tax here, no soc secr or what ever.)
>
> Booking:
> Bank                                       $900.00  (D)
> Expenses: Withholding tax     $100.00  (D)
> Accounts Receivable                                      $1000.00  (C)
>
> I believe we can not disagree on that.
>
> Now assume I do this for 5 months and then for any reason I stop my 
> business.
> (sick , dead :-), going overseas, what ever.
>
> I put in a tax return and two weeks later ( believe me that is possible 
> here)
> I receive a refund on paid withholding tax.
>
> Booking:
> Bank                               $100.00 (D)
> Expenses :Witholding tax               100.00 (C)
>
> I think this is correct as well.
> My " tax withholding account" shows then the right amount I owed and paid.
> This is all in the same financial year and we would not have a problem to
> accept this.
>
> The question is " how do you account for this if the money comes in", in a
> different financial year.
> There MUST be an accounting way for doing is.
> IAW how do you handle bookings etc which really have an effect on 
> different
> financial years?
> It is such a long time ago I did accounting courses and I have no books 
> here
> anymore to find out.
> But I remember there was an account you could use for that.
>
>
Here are a couple of different options for dealing with it.

Number one (this may be the easier solution).
When you know what the amount of the refund will be, make an entry to record 
the refund receivable dated for the last day of the previous year.  Assuming 
a December 31, 2003 year end:

Income taxes recoverable      $100.00(Dr)
    Income tax expense                             $100.00(Cr)

Then, when you receive the cheque on, say, February 1, 2004

Bank                                     $100.00(Dr)
    Income taxes recoverable                     $100.00(Cr)



Number two
Change the original entry to be

Bank                                       $900.00  (Dr)
Income tax recoverable           $100.00  (Dr)
    Accounts Receivable                                      $1000.00  (C)

Continue this for your five months, this would accumulate $500.00 in the 
recoverable account.

When you know the amount that will be recovered, make an entry dated for 
December 31, 2003 (again assuming a Dec 31 year end):

Income tax expense                  $400.00 (Dr)
    Income taxes recoverable                               $400.00(Cr)

Then, when the cheque is received on Feb 1, 2004

Bank                                     $100.00(Dr)
    Income taxes recoverable                     $100.00(Cr)


I know that in my previous postings I've referred to the recoverable account 
as a payable account in a debit balance.  In this case I used the term 
recoverable (or receivable) because I knew in advance that I would be 
getting a refund.  In most cases you don't know if it will be a recoverable 
or payable, so the norm is to record it all in a payable account.  Your not 
breaking any laws by having a payable in a debit balance.  It would be great 
if GNUCash could have special accounts like this that flip back and forth 
from payable to receivable depending on the balance, but that's a whole 
other topic.

Is one method "better" than the other.  Not really.  In the first method, 
the income tax expense is recorded at $100.00 per month, when, if you 
average it out, it should only be $80.  In the second method the expense is 
only recorded at the end of the year, so your monthly income statments would 
not reflect the expense, and the last month would be overstated. For the 
year as a whole, you get the same result either way.  Also, in either case, 
your cash flow statement would be the same, whether you looked at it 
monthly, or yearly.

As to the account that you are thinking of, it's probably retained earnings. 
But, please, don't go there.  Use one of the above solutions.

Hope this helps

David


> -- 
> Remember:"Love is Hate. War is Peace. Windows is Stable."
> -- Anonymous
>
> Greetings from
> /bill at 169 west , 19 south.
> Disclaimer: Any errors in spelling, tact, or fact are
> transmission errors."
>
>
>
> -- 
> Remember:"Love is Hate. War is Peace. Windows is Stable."
> -- Anonymous
>
> Greetings from
> /bill at 169 west , 19 south.
> Disclaimer: Any errors in spelling, tact, or fact are
> transmission errors."
>
>
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