[debbicard]

Does anyone know how to handle a situation when you invoice in Dec. but the purchase of the product ot provide to our customer wasn't purchased until Jan. Thus making the P&L look off. Do you change the dates to keep them in the same month? Thanks!

[CaptainForest]

What??

You billed the customer in December, but did not ship them the product until January, do I have that right?

In which case, how can you record it as a sale until you have sent it to them?

[debbicard]

We collect 50% up front for large PC orders. Then order the product from our supplier and by the time we receive the products we have received the 50% down payment. However, for this transaction it fell not only in two months but two years. Wasn't sure how to handle it.

[CaptainForest]

Please bare with me as I try to understand.

In December, the customer sends you a request to buy a computer.

In January you tell your supplier you want a computer and they also deliver it to you in January. Also in January, the customer pays you 50% of their bill.

When do you record the revenue?

That all depends on many factors, and how you record others.

What is the hardest part of the sale? Getting the order initially, collecting the money from them?

That will be an internal decision you will have to look at.

Can they turn around and ask for their 50% back?

Will they pay the remainder 50%?

Most likely you would record it:
Dr. Cash 50%
Dr. AR 50%
Cr. Sales

Plus, have some allowance for bad debts.

[debbicard]

I'll try to be more specific.

Customer receives quote from us and agrees to it in December. We issue an invoice in December, for the total amount stating 50% due now and 50% due upon installation. With the holidays the actual order for the product for our customer didn't take place until Jan. We are on an accrual basis, so now we show the customer invoice in Dec. 06 (income) the COGS occurring in Jan. 07 (expense) Which throws the P&L off not only for monthly but yearly too. So, we are contemplating the need to either move the customer invoice into Jan. 07 or the expenses to Dec. 06, so the transactions occur within the same year?

[KongTheKonqueror]

The down payment in Jan should be considered unearned revenue (a liability) since you have not completed the sell but collected cash. When the customer pays and you deliver in Jan, eliminate the liability, recognize the entire expense, recognize entire the revenue, and record the cash received in January.

[CaptainForest]

Debbie, the invoice in December should NOT be recognized as revenue in 2006, but rather in 2007.

Show the down payment as unearned revenue.

So in your 2006 Books:
Dr. Cash
Cr. Unearned Revenue

In your 2007 Books:
Dr. Cash (the other 50%)
Dr. Unearned Revenue
Cr. Revenue

Plus, the COGS stuff.