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Hi all
Firstly apologies for the very simple question im about to ask.
The company i work for demands proforma invoices from customers who have a poor credit rating.
Currently they credit debtors (showing a negative balance) and debit cash but my understanding is that this is simply defered income so dr cash cr def income (liability).
The current method of accounting obviously reduces the debtor balance and reduces the liabilities which is simply not correct . Im assuming this is all covered in IFRS 15.
Sorry for billy basic just wanted the confirmation from my peers.
Many thanks !
I assume you mean prepayment (ie payment in advance). If so then yes the correct entry is Dr bank and credit deferred income. You would be correct in saying both debtor and creditor balances are understated.
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