Hi,

I am in the process of closing down my business.

I owe a supplier £2,394.70. They have agreed to take back there inventory valued at £1,645.53. This leaves £749.17 that the supplier has written off.

I assume to record this I would do a general transaction form the 'inventory' to 'accounts payable' account, but where would I place the £749.17 that remains?

Thanks for any help in advance.

Cheers,

Hello M Shepherd,

Is your business registered for VAT?

Also, how did you originally record the purchase of the goods - did you create a Purchase Invoice allocated to the Inventory account?

Regards

Hi Mark,

Thanks for the quick reply.

My business is registered for VAT and I did record the original transaction as a purchase invoice allocated to the inventory account.

Best Regards,

Hello M Shepherd,

In that case I would do the following:
1. Create a Purchase Credit Note for £1,645.53 with the Account set to 'Inventory' and the VAT Treatment set to 'Purchase of Goods or Services from UK Supplier'
2. Create another Purchase Credit Note for £479.17 with the Account set to 'Uncategorised Income' and with VAT Treatment set to 'Sale of Goods or Services to UK Customer' and VAT rate of 20%. (I'm not an expert on this and I recommend you check this VAT treatment with HMRC).
3. Allocate both purchase credit notes to the outstanding purchase invoice(s).

Regards,