thedeitypo
14-01-08, 17:32
It has been a while since undertaking the AAT, and I was hoping that somebody could help me
..
I work within an Internal Audit team, currently undertaking a review of refunds issued within our Credit Control (CC) section. At present, the current process is fairly simple. Service areas contact CC to raise an invoice for a proposed service in the forthcoming year, CC then raises the invoice, and the service area receives the income straight away. These invoices are based on estimates, and then at the end of the year in question, either an amending invoice or a refund is issued to the customer using actual service levels.
Upon issuing the refund, the CC team charge the refund back to the original service area. The problem with this to me, is that the refund itself is not being issued through the Debtors Control account, and hence, does not appear within the subsidiaries account either.
As an example, I have detailed a simplified version of the double entry accounting currently in place for the two stages Invoice & Payment, and also Issue of the Refund.
Invoice & Payment
DR Debtors Control Invoice £100
CR Service Area Invoice £100
DR Bank Receipts £100
CR Debtors Control - Receipts £100
Current issue of Refund
DR Service Area Refund to Joe Bloggs £100
CR Refunds - Refund to Joe Bloggs £100
DR Refunds - Refund to Joe Bloggs £100
CR Bank Refund to Joe Bloggs £100
As you can see, and mentioned above, the refund is issued separately to the Control Account. The only indication within the customer account that a refund has been issued, is a small text note on the account (not to be confused with actual entries in the ledger).
Although theoretically all accounts balance, my argument is that, should the CC team not raise a Credit Note to create a credit on account, which can then be refunded? This way, all entries should appear within the Control and Subsiduary Accounts, and it would provide for a full audit trail. If memory serves correct, this is not a complete Ledger and is not complying with an Accounting Standard (although cant remember which one).
Upon approaching the manager in question, I was faced with a certain degree of opposition as they felt that a note on account, and the fact the Control Account & Subsiduary Accounts balanced was sufficient, so I took a step back and am now seeking further advice.
I have attached what I believe should be the correct entries at the end of this message (albeit I am rusty with double entry), but this way entries will be present within the accounts for a credit note, and then a clear refund on account.
Could somebody please confirm to me;
a) Whether the way in which the CC team issues refunds is incorrect?
b) Whether there is a relevant Accounting Standard to which this issue may relate?
I hope this is understandable.......
Any help would be greatly appreciated
Regards
Paul
P.S The Double Entry I believe is correct
Correct Issue of Refund (this should be achieved by issuing a credit note, and then refunding the credit on A/c)
DR Service Area Credit note due to incorrect Invoice Joe Bloggs £20
CR Debtors Control Credit note due to incorrect Invoice Joe Bloggs £20
DR Debtors Control Refund due to credit on A/c Joe Bloggs £20
CR Refunds - Refund due to credit on A/c Joe Bloggs £20
DR Refunds - Refund due to credit on A/c Joe Bloggs £20
CR Bank - Refund due to credit on A/c Joe Bloggs £20
I work within an Internal Audit team, currently undertaking a review of refunds issued within our Credit Control (CC) section. At present, the current process is fairly simple. Service areas contact CC to raise an invoice for a proposed service in the forthcoming year, CC then raises the invoice, and the service area receives the income straight away. These invoices are based on estimates, and then at the end of the year in question, either an amending invoice or a refund is issued to the customer using actual service levels.
Upon issuing the refund, the CC team charge the refund back to the original service area. The problem with this to me, is that the refund itself is not being issued through the Debtors Control account, and hence, does not appear within the subsidiaries account either.
As an example, I have detailed a simplified version of the double entry accounting currently in place for the two stages Invoice & Payment, and also Issue of the Refund.
Invoice & Payment
DR Debtors Control Invoice £100
CR Service Area Invoice £100
DR Bank Receipts £100
CR Debtors Control - Receipts £100
Current issue of Refund
DR Service Area Refund to Joe Bloggs £100
CR Refunds - Refund to Joe Bloggs £100
DR Refunds - Refund to Joe Bloggs £100
CR Bank Refund to Joe Bloggs £100
As you can see, and mentioned above, the refund is issued separately to the Control Account. The only indication within the customer account that a refund has been issued, is a small text note on the account (not to be confused with actual entries in the ledger).
Although theoretically all accounts balance, my argument is that, should the CC team not raise a Credit Note to create a credit on account, which can then be refunded? This way, all entries should appear within the Control and Subsiduary Accounts, and it would provide for a full audit trail. If memory serves correct, this is not a complete Ledger and is not complying with an Accounting Standard (although cant remember which one).
Upon approaching the manager in question, I was faced with a certain degree of opposition as they felt that a note on account, and the fact the Control Account & Subsiduary Accounts balanced was sufficient, so I took a step back and am now seeking further advice.
I have attached what I believe should be the correct entries at the end of this message (albeit I am rusty with double entry), but this way entries will be present within the accounts for a credit note, and then a clear refund on account.
Could somebody please confirm to me;
a) Whether the way in which the CC team issues refunds is incorrect?
b) Whether there is a relevant Accounting Standard to which this issue may relate?
I hope this is understandable.......
Any help would be greatly appreciated
Regards
Paul
P.S The Double Entry I believe is correct
Correct Issue of Refund (this should be achieved by issuing a credit note, and then refunding the credit on A/c)
DR Service Area Credit note due to incorrect Invoice Joe Bloggs £20
CR Debtors Control Credit note due to incorrect Invoice Joe Bloggs £20
DR Debtors Control Refund due to credit on A/c Joe Bloggs £20
CR Refunds - Refund due to credit on A/c Joe Bloggs £20
DR Refunds - Refund due to credit on A/c Joe Bloggs £20
CR Bank - Refund due to credit on A/c Joe Bloggs £20