In a double entry system what entries would you make if before you pay 'Co A' your o/s bill they give their receivables to another 'Co B', who then invoice you accordingly?
I was first thinking of write off accounts before I came round and thought that you would open up a new creditor account in the name of 'Co B', then debit the'Co A' account and credit the new 'Co B' account to complete the double entry.
factoring is one of those ugly area's where so much depends on the substance of the transaction.
Simplifying matters greatly there is recourse and non recourse factoring. That is factoring where a debt to all intent and purpose is sold to the factoring company or alternatively the factored debt could be perceived as a secured loan in which case it remains as a debt.
These are treated differently in the books with the former removing the debt from the books but the latter causes dual recognition where the debt remains (as in substance it is merely being used as security), the money from the factoring company is recognised as a loan and a liability is now also recognised for the money owed to the factoring company.
Factoring used to be used for off balance sheet finance, that is financing that never hit the financial statements meaning that merely reading them did not give the reader a true and fair view of an entities affairs.
This is addressed by FRS5 which is concerned with substance over form and revenue recognition.
Considering the above there is no single simple answer to your question as such really depends (as mentioned previously) on the true substance of the transaction.
This has not answered your question but created a new one in that you need to know the substance of the factoring arrangement in order to determine how it should be treated in the books.
Sorry!
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thanks for the good answer, using the style of lingo that I like to read!
Funnily enough only a week or so ago I read over a large chapter in a large book on Financial Accounting about off balance sheet financing. I now have remembered the subheadings in the chapter on provisions, substance over form etc etc. Nice long examples of companies working on temporary rig projects, where once the work is done they have decommissioning issues where expenditure to restore the landscape to prior condition is needed as a provision. Hugely interesting reading which I managed despite being tired! The problem being retaining the information!
Thanks for the wording in your brackets. It helped in my understanding the situation.
Now the client I'm working on at the moment only has an analysed cash book, yes paper only! So there is no control account nor individual purchase ledger. Now for this client's purposes, all that matters is that I put the expense down when it's paid. It's my thinking of what would I do if it was true double entry accounting that led me to search for information!
The amount of hypothetical questions that can be raised in accounting is gargantuan! Similar to what you said in another post I've just been reading;
"This business is a constant learning exercise and you'll find that the more that you know the more that you realise that you don't...."
which is so true. Just as I think I know something, along comes a synapse impulse in my brain that says "ah, but now you've got 'this' to consider in conjunction with" the new knowledge! Hope the ISA402 has proved good bedtime reading!
always good chatting to people who really love getting to grips with the idiosyncrasies of accounting standards.
I know that Bill (Wella) is also prone to delving into the odd text book that he doesn't really need to look in but just figures that there's yet more info hidden in there.
Which book was it that you were reading as it sounds like the sort I would find of interest.
Ahh, Provisions, continent assets and contingent liabilities... Now that is one seriously interesting standard (FRS12) with countless hypothetical scenarios just begging to be investigated.
Right, that's my bedtime reading sorted tonight (ISA402 is only 22 pages including the appendices so that one was just a light snack of a read).
Talk in a bit,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Ah yes, I did notice Wella's comments on another page, also of a fact packed informative nature! It's good to read. I'm only just starting out really, and I understand how useful it is reading the same information but in varied contexts. That way consolidates the learning better than reading the same material time and time again.
It's useful that I enjoy understanding the principles or attempting to do so too. Rather necessary seeing as I've chosen this as a rather recent career change! From the other forum you or Bill commented on how when you actually do the work as opposed to just theory is the time you really learn where things all relate. Another point was how the internet for fast research really is the biggest godsend to anyone looking to assimilate accountancy application. (alliteration overload!) So true.
The book amongst others that I was reading; I've just had a quick search for it, Financial Accounting and Reporting 12th Edition by Barry Elliott and Jamie Elliott. FT. Prentice Hall. One of the absolutely monstrous reference book types £50 area too. Libraries... saviours of the wallet. The Costa Coffee shop close by... wallet demolishers. Maybe 'Costa Packet' should have their own account rather than just the food & drink one!
-- Edited by Shaun UK on Friday 28th of May 2010 07:04:50 PM
If you're using the Elliot book that means that your on IFRS's rather than UK GAAP.
I know that I've got to move over soon but just need to get those ACCA letters after my name first.
That one is actually in my Amazon save for later list (along with 106 other accounting and finance books, a handful of DVD's and the SAGE courses which I'm waiting to come back down from £145 to £25... Yes, they really do fluctuate that much in price).
With eight billy bookcases already creaking at the seams I definitely belong to the train of thought that one can never have too many accountancy books.
Most of mine are however Kaplan or BPP study texts and compilations of old ACCA exam papers.
There are quite a few career changers on here either because of redundancy or that people just picked or had the wrong career imposed on them in the first place.
Personally I'm a banker so accountancy is a very small sideways step and it actually enhances the banking career if I get sucked back in that direction. (Got two telephone interviews and a face to face on Tuesday so there's a strong likelihood that such may be on the cards).
One of the best places for getting good accountancy advice (after this one of course) is Accountingweb. Very very good site but not as friendly as this one so if you go over to the dark side stay well under the radar.
The other sites of course are businesslink, HMRC and the ASB/FRC/APB websites.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I've hardly been online since our last post. Busier week than usual. But back with some online time again. You know I didn't catch onto the fact the Elliot book was IFRS. I just picked it up, went straight to chapters further in the book. In my self teaching attempts I've been aware of UK GAAP and International principles being different, but still need to learn more about them so I become aware of differences and the background etc.
I won't really be applying what I'm learning for a while anyhow. As at the moment I'm just doing bookkeeping for 2 businesses and doing the end of year tax return for the one of them. Im doing a Sage course though only level 1 at the moment. I'm hoping that will help me find some p/t basic accounts department job to top up the income. Then I'm looking for 2 days a week with an Accountancy practice in order to gain more knowledge and confidence etc. If I can get that, then I've got funding to do the AAT. So I need to get thinking about how best to approach accountants and how best to pitch myself. So that's my plan, along with obtaining more s/e clients into the future that will enable me to give up the p/t job.
I know what you're saying about the career changers like myself. I've been on a few forums and see so many people asking how to get into the business and many many more questions. Sometimes I follow my logic when it tells me the numbers and opportunities are against me; other times I ignore it and go for it. That's what I've done with bookkeeping/accountancy, just decided I like it, so at least give it a go and hope to catch some right place right time luck along the way.
How long have you been in banking? Definately lots of transferable knowledge there then, and as you say a small sideways step. How did your interviews go last week?
Yes, I like this site better than UK Business Forums. I have been on AccountingWeb, which is good, but as you say obvious difference in the forum/comments side of things. For basic knowledge and hypothetical situation thoughts I quite like AccountingCoach. Also yes I've spent quite some time on the HMRC website, but need to give time to the ASB/FRC/APB ones.
Thanks for your tips. As BT would say, it's good to...
well, I thought that the interview went well. Got an email from the HR guy the next day saying thanks for attending and commenting that I got an incredible score in the aptitude test... And since then it's been silent.
Sent an email this morning asking what was happening. Got notification that it had been read but no proper reply to it yet... Would quite like to get this one as it's only twenty mins from home. I've been approached about a couple of others but they're both in Edinburgh (260 miles away) which is good for the 40p per mile but a very, very bad mix for being a single parent!
As for banking I've only been in that arena for around eleven years but it followed on from developing financial systems in other industries such as Insurance, Utilities and Pharmaceuticals so all in all about thirty years working in financial systems development.
Got to rush but hope to talk again soon,
Kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
