Prepaid Services (Unearned Income, Unearned Revenue)

[rshgeneral]

After doing some more thinking and some testing, I'm not sure the proposed
solutions are adequate to the seemingly simple task I'm envisioning. 
Perhaps I'm missing some small detail.  I would like our books to reflect
business reality and accounting reality, and the proposed solutions don't
fully handle both.

The first solution proposed in considering how to handle Prepaid Services
seemed to indicate that one should take a payment and post an invoice on the
date of payment and then note the sale and reduce the liability (Prepaid
Service) on the date the service is provided.  When I take a payment, the
option presented (there is only one) indicates that the payment will be
posted to Accounts Receivable(bad).  The transfer accounts available are all
Asset and Liability Accounts(good).  This is where the problem arises. 
Using accounting principles, I should be able to post to Checking (Asset)
and transfer to Prepaid Services (Liability).  This should be done to
reflect the location of the money (business reality).  The money is in my
checking account. I have taken a payment, I have not provided a service,
therefore it makes no sense that A/R should be involved at all.  A/R should
be involved if I have provided a service and have not been paid. While the
proposed solution works out in the end  (meaning a sale is created, money is
in checking, a receipt and invoice are created, and a liability has been
extinguished) when I run a customer report, although the payment is noted, a
customer's credit is not indicated because the creation of the invoice
counteracts the effect of the prepayment on A/R.  It seems as if Customer
Reports can only get information from A/R.  This is not good for accounting
reality.  The person I am helping needs to be able to know quickly whether a
customer owes her money or has a credit.  As I mentioned, while the customer
report indicates the payment, the invoice posting counteracts the credit on
the report.

The second solution proposed merely posting a payment to reflect the receipt
of monies, and then creating and posting an invoice on the date the service
is provided.  This prevents the reporting problem described above because no
invoice is posted upon the receipt of the money and it also makes sense. 
One should only create an invoice when a service or sale is created. This
method also requires a general ledger transaction to reduce the Prepaid
Service liability and credit the sale.  So again, as above, in the end
everything is fine.  However, this solution, and the solution above, both
lack the ability to reflect the location of the money.  If I have money in
my checking account, accounting reality should reflect this fact.  The
problem seems to stem from the fact that taking a payment restricts the
account to which the payment should be posted to A/R.

Again, I hope I'm missing some detail.  I just need to make sure that my
accounts reflect the location of the money and that our reporting indicates
whether a customer has a credit.  Is there a way to change the account to
which a payment can post?  I'm assuming that a custom report would have to
be created to search through payments and match them up with invoices in
order to reflect a customer's status. And while I don't mind learning Scheme
and how to create custom reports (looking forward to it actually), I'm
wondering if gnucash is up to the task of handling mundane business
transactions.

Thank you in advance for any time and consideration.



rshgeneral wrote:
> 
> I'm a new gnucash  user helping someone switch from quickbooks.  I'm not
> sure how gnucash handles prepaid services.  In accounting, I believe I
> would credit (increase) a Prepaid Services account (a liability account)
> and debit (increase) a checking account.  Using this process would produce
> the correct accounting result, however, I just want to be sure that there
> is not already a proper way to do this in gnucash using invoices.  I'm not
> even sure if you are supposed to create an invoice for a prepaid service. 
> Whenever I try to create an invoice, it allows me assign it to an income
> or liability account (i like).  When I try to post the invoice, I'm
> restricted to posting it to Accounts Receivable (i dont like).
> 
> Should invoices be used for Prepaid Services? Or should I just utilize
> general ledger transactions until the service is performed and then create
> the invoice and take the payment?
> 

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