Invoice & Bill Posting Date Issues Across Multiple Periods

[DaveC49]

Hi Adrien,

I am assuming here you mean when you are pre-billed by a supplier of a good
or service. What follows is not necessarily restricted to insurance or even
to prepayment but just uses these to illustrate the principle. If you mean
that you are pre-billing a client, my apologies and please ignore.

I think the issue is not that there is a single event associated with things
like prepayments but that there are multiple events. If one wishes to meet
the full requirement to provide an accurate reflection of events in your
accounts, for example to handle the issue of pre-billing of insurance for a
future accounting period you have (at least) the following events which you
record in your accounts as they occur unless of course
regulations/legislation specifies otherwise.

1. Insurer issues an invoice to you.  You have no knowledge of this until
you receive it. This doesn't appear in your accounts.

2. You receive an invoice from the insurer. It will specify a due date and
terms and conditions, possibly a discount if paid in advance or interest if
not paid by the due date and an amount to be  paid at a future date.  You
raise a Bill in your accounts. I would choose the date you receive the
invoice from the insurer 
as the post date as this is when you become aware of the obligation to make
that future payment and receive in return insurance cover for an agreed
period, which may or may not be from the due date even though it generally
is.  You would record the bill with a debit to an Asset:PrepaidInsurance
account and a corresponding credit to Liability:A/P created by posting the
bill. You could equally use the date on the invoice issued by the
insurer/supplier, unless there is a significant difference between the date
it was issued and the date you received it, but the latter is really the
most significant event associated with the bill for your accounts. (Dates on
line items in the invoice from a general supplier to you may be relevant
however if you are matching a particular expense to specific items of
revenue of course).

3. You pay the Bill at or before the due date. (Ignore the discount
possibility.) Again I would use the date I raised a cheque, authorised a
transfer from my account, handed over cash etc. depending on how I paid the
bill. In the case of a cheque or where there may be a significant delay in
an electronic funds transfer after you have authorised it, you may use a
temporary clearing account to record that you have made the payment and then
clear that account when the funds are actually transferred (cheque cleared
or electronic transfer from your account recorded if this level of detail is
of importance to you). In the simplest form this would be a credit to your
Asset:Bank account and a debit to the Liability:A/P at the date you made the
payment.

4. The final step would be to expense the prepayment at periodic times
during the period of the insurance with a credit to Asset:PrepaidInsurance 
and a debit to Expense:Insurance. 

By capitalising the insurance prepayment, it can be carried through over
into a future accounting period and expensed in that period.

I am not sure what you meant by "My issue isn’t the idea of a pre-paid
asset, my issue is that it is increasing when I post the bill, not when I
pay it."  I guess you mean the A/P balance by it or do you mean the Expense
account (or an Asset account if it is prepaid). If it is the A/P balance,
then that is the correct expected behavior as Derek has pointed out. If the
posting date is not relevant to matching particular income then capitalising
it to an asset account then expensing it at the relevant date wil do the
trick. Next issue is whether the asset account should be under current
assets, if it is to be expensed within the current period or in non-current
assets where it is to be expensed in a succeeding period.



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David Cousens
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