I'm in a bit of a quandary, I (think I) understand how accruals and prepayments work and how to show them in the accounts etc (after many questions on here thanks for all the help ), however i've never had to deal with them in real life and the question of dealing with them at work is now being asked.
What I don't know is how people keep a record of what is likely to be an accrual and what is a prepayment.
My idea was to list all the branches and their service providers (rent rates electricity etc) and in each category for each branch make a note of whether the service provided for the month is paid for in the same month (requiring no action) whether it is paid in advance (therefore a prepayment) or whether we get billed after the month end (therefore make an informed guesstimate as to the value of the service).
Would this be a long winded way of doing it or is there a much simpler way of being able to do this.
Hi Steve, Whenever I receive a purchase invoice that is for future months, I post it to the prepayment code in the balance sheet. I do monthly balance sheet reconciliations and release amounts from the balance sheet to the P&L. Within the balance sheet rec's (I usually keep these in excel) I always make a note of the date of the invoice, the supplier name, total amount of invoice, the period the prepayment covers and ultimately how much is left of it in the balance sheet. Obviously every month the balance sheet will reduce every month and the P &L will increase. (I'm assuming a purchase invoice that say, covers a 12 month period like a subscription or something).
With accruals I do exactly the same, ie keep balance sheet rec's in excel and every month when analysing the P&L, if anything missing that you havent received an invoice for, accrue for this, ie debit the expense code and credit the accruals in the balance sheet. When the purchase invoices come in that you have already accrued for, I would just post directly to the accruals code in the balance sheet, which would in turn contra this out in the accruals.
It does help thank you. It's good to see if from someones point of view who does it for a living.
So for example in sage for an accrual it will let me post the expense to the P+L and to accruals which is fine, the invoice comes in so I can post this to the accruals nominal which will contra the amount posted previously and it will also go in the creditors control. What happens if I got the guesstimate for the accrual amount wrong? Would I post only the amount accrued to accruals and post the rest to the expense if I underestimated and post only the amount accrued and journal the rest out of the P+L and accruals account if I overestimated?
Yes I would do the accrual via a journal, debiting the expense and crediting accruals (2109 in sage). When the invoice eventually comes in post as a normal purchase invoice under the supplier accoiunt you should already have set up (if used this supplier before) and rather than posting direct to the P&L, post it to 2109. Therefore, it doesnt hit the p&L (you wouldnt want it to if the invoice has come in later than the previous period you accrued in), the amount will be outstanding as a creditor (as you probably wont have paid for it yet) and the accruals will now have been contra'd off.
And yes you could do what you mentioned if the accrual was a different amount to actual, OR reverse the accrual and post the actual invoice, but just make sure they are in the same period (if you have a system that closes periods then this is irrelevant).
Thank you again. Now I have an idea of where I'm heading I can start setting it up at home and take it into work with me as there never seems to be enough time at work. .
), however i've never had to deal with them in real life and the question of dealing with them at work is now being asked.
