MyCIMA

What constitutes a sale?

Posted: Thursday 04 February 2010 by Bill Haskins
Replies : 5
Keywords: cost, invoice, sale, sales

Hi,

A member has sent us the following query.  Can anyone help, please?  I'm not sure what the answer is.

" I am a member in practice and my query relates to what constitutes a sale. I have a client who places personnel in clients premises and invoices for the cost of each employee, that is the cost of gross pay + employers N.I. and they then charge a fee of 15% on the full cost.  When the full value invoice is included in sales it inflates the sales figure, would it be in order to show only the 15% fee in sales and offset the remainder of the sales invoice against actual cost of labour?

SSAP 18 states that recharged costs such as advertising ( a franchisor recharging marketing costs to franchisees where there is no markup) should not be included in sales but my query is somewhat different. "

Thanks, 

Bill Haskins, CIMA

Invoice value = sales value

Posted by Nick Topazio on Thursday 04 February 2010 14:58
In my opinion the full invoice value is the sales value.  The business model appears to me to be the provision of services thorough on-site labour which attracts a 15% margin (or mark-up to be precise).  Reflecting the full invoice value in sales and taking the cost of the labour supplied as a cost of sale does seem the most appropriate way to account for this.

Cost of Sales

Posted by Roary The Tiger on Thursday 04 February 2010 16:38
I agree with Nick the full invoice value with labour costs in cost of sales is the proper way and the way I accounted for it when I was the accountant for a group of recruitment agencies. How can you only include the mark up when the labour is on your payroll and you are responsible for holiday pay etc?

Further observations

Posted by Cliff Moggs on Friday 05 February 2010 13:01
Adding to the posts the business contract is the supply (sale) of a ‘service’ in the form of ‘time by a competent person’ in exchange for ‘money’, its price/value. The price indeed may well be derived from cost + a mark-up but the sale is its ‘value’ (Debit receivable – credit revenue/sales). Benefits of a written agreement would be to minimise misunderstandings. Invoices will be submitted weekly/monthly/completion, payments is due ‘x’ days after receipt of invoice (Debit cash – credit receivable), etc. etc. Regards Cliff Moggs

Who's paying the actual employee?

Posted by Adrian Rutter on Tuesday 09 February 2010 10:08

Must confess I'm a bit puzzled by why there's any query, because the correct treatment is easily defined by who actually employs the people who end up doing the work.

If our MiP's client is "placing" its own personnel working in clients' premises, then as Nick and Roary say, the "sales" value for MiP's Client Ltd can only be the full amount: 'gross pay + employer's NI + 15% mark-up'. 'Gross pay + NI' is then MiP's Client Ltd's cost of sales. Surely doing it any other way wouldn't just be illogical, it would lead to all sorts of complications with things like audit thresholds, VAT turnover limits and VATable sales figures?

If our MiP's client is "placing" personnel working in clients' premises and paid by the end-client where they work, then the personnel payroll costs are only relevant to MiP's Client Ltd as the baseline for the 15% commission. MiP's Client Ltd shows its 15% mark-up as its sales.

Good job somebody somewhere is doing something that actually generates cash. 

As is so often the case, follow the money and you'll find the answer. 

What constitutes a sale?

Posted by Bill Haskins on Monday 22 February 2010 10:31

Thanks very much for all your responses.

Regards, 

Bill