Executive Proposal

1. Background

During 2025, fuel drawn by directors’ vehicles and the fuel tanker was recorded as normal retail sales. This resulted in overstated revenue and distorted gross profit. This document outlines both the correct accounting framework going forward and the structured correction plan for 2025 data.

2. Correct Accounting Treatment (Going Forward)

Fuel drawn by company-owned vehicles is internal consumption, not a sale.

• No sales receipt
• No revenue recognition
• No output VAT
• Inventory quantity and value must be reduced

Proper Method in QuickBooks:

To Be Done Through Interface

Use Inventory Adjustment (Quantity & Value) and post to the relevant expense account.

Debit   Motor Vehicle Fuel Expense (or Tanker Fuel Expense)
Credit  Fuel Inventory Asset
    

3. Issue Identified in 2025 Records

Internal fuel was processed through Sales Receipts/Invoices. This caused:

• Overstatement of Sales Revenue
• Overstatement of Output VAT
• Artificially inflated Gross Profit
• Distorted operational performance reporting

4. 2025 Correction Plan

Step 1: Identify Internal Fuel Sales

• Filter 2025 sales to identify internal consumption
• Confirm litres and values attributable to directors, station vehicles and tanker

Step 2: Cancel the Incorrect Sales

For each identified transaction:

• Cancel Sales Invoice through interface

Effect of Cancellation:

• Revenue decreases
• Output VAT decreases
• Accounts Receivable/Cash corrected

Step 3: Record Proper Inventory Adjustment

After cancelling sales, record Inventory Adjustment (Quantity & Value) for the same litres.

• Negative quantity entry
• Adjustment account = Motor Vehicle Fuel Expense or Tanker Fuel Expense
• Use memo referencing “2025 Reclassification of Internal Fuel”

Debit   Motor Vehicle Fuel Expense
Credit  Fuel Inventory Asset
    

5. VAT Handling Consideration

If VAT returns for affected months have already been filed:

• Adjustments must be reflected in the next VAT return as correction entries
• Consult tax advisor before filing amendments if amounts are material

6. Financial Statement Impact After Correction

Item	Before Correction	After Correction
Revenue	Overstated	Accurate
VAT Output	Overstated	Corrected
Inventory	Correct Quantity	Correct Quantity
Expenses	Understated	Accurate

7. Internal Control Implementation (Post-Correction)

• All internal fuel to be processed via Inventory Adjustment only
• Separate expense accounts for Directors and Tanker fuel
• Mandatory vehicle registration and odometer recording

8. Conclusion

The 2025 reclassification will correct revenue overstatement, align VAT reporting, and restore accurate gross margin reporting. Going forward, strict use of Inventory Adjustment for internal fuel will ensure compliance, transparency, and audit readiness.