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Jonathan, a solicitor at Baker & Partners, is instructed by the personal representatives of an estate in a probate matter. He hires a house clearance company to clear the home of the deceased, and the invoice is addressed to the firm for £800 + VAT. What accounting entry is made in the client ledger when the firm pays the invoice?
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Since the invoice is in the firm's name, the principal method must be used. Therefore, the payment is recorded as a VAT-exclusive debit on the client ledger, business account. This correctly reflects the firm's responsibility for the disbursement, which is later recharged to the client with VAT. Option A is incorrect because it suggests a VAT-inclusive payment from the client account. Option B is wrong as it is VAT-inclusive. Option C is incorrect because it suggests a credit entry rather than a debit. Option E is incorrect because it is a VAT-inclusive credit entry.
Key Point: The principal method requires the firm to account for the disbursement as a business expense, with the VAT-exclusive amount debited from the business account. The client is then billed for the total amount including VAT.
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