[GNC] How To Handle Prepayments

[Adrien Monteleone]

I’m not sure I’m entirely following the timing exactly, but many insurances, and it looks like your’s falls in this category, are pre-paid.

Thus they are assets until they are ‘used’.

So when you make the initial payment:

Dr. Assets:Current Assets:Pre-Paid Assets:Insurance
Cr. Assets:Current Assets:Cash/Checking

You can handle that with a Vendor bill and Payment if you like.

As the insurance is ‘used’:

Dr. Expenses:Insurance
Cr. Assets:Current Assets:Pre-Paid Assets:Insurance

This can be handled with a manual or scheduled transaction as your situation dictates. (which could also be a vendor bill, if you didn’t use one for the initial payment)

Subsequent payments are likely still in advance, and so would go to increase the pre-paid asset first and then when used, they are expensed.

There is no need for involving A/P accounts or credit memos to adjust them. (unless you opt for the vendor bill route, but you still shouldn’t need credit memos)

I had a thread some months back on a similar topic and the issue is something to consider:

I receive a bill about a month in advance of the due date every six months for auto insurance. If I pay that bill early, or on time, I am gaining a ‘pre-paid’ asset to be used up over the next six months. My problem wasn’t using the bills feature to handle this, or the expensing (I just set up a scheduled transaction for that part) but that I couldn’t post the ‘advance’ bill without it posting to my assets right away. Yet, it isn’t an asset till I actually pay it. I was wanting to take advantage of the bills due reminder for this bill. I had to settle on waiting to post the bill until I actually make the payment and forgoing the reminder. That way, my assets weren’t inflated early. Otherwise, everything else works out fine.

Regards,
Adrien

> On Dec 15, 2018, at 3:06 PM, tbalaban <tbalabanjr at gmail.com> wrote:
> 
> My Company pays an initial payment to our insurer at the beginning of each
> policy year. As we incur insurance costs based on event participants, that
> initial payment is charged. After it is exhausted we get a monthly bill for
> the amount due. In no case do we ever get the initial payment back.
> 
> I'd like to treat the initial payment as a credit to insurer's A/P account
> then each month create a bill for the amount payable.
> 
> Is this the correct way to handle such a transaction?
> 
> Assuming it is, how do I credit the amount due from whatever account I
> posted the initial payment to?
> 
> In practice we pay the initial payment in February, the start of our paolicy
> year. Usually, in April or May, the initial payment is exhaused and we have
> to send more money to pay that month's bill. I'm not at all clear on how to
> post this situation.
> 
> I'd appreciate knowing how to do this in GNUCash as well as any comments on
> the applicable general accounting rules. In Quickbooks I could debit or
> credit A/R or A/P diectly and selects the customer or vendor required. Since
> that capabiity does not appear to be available in GNUCash, how do I post it?
> 
> Many thanks for your already generous help.
> 
> 
> 
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