[GNC] How To Handle Prepayments

[Adrien Monteleone]

In that case, yes, I would just expense them as well. And you can do that with a manual transaction or a vendor bill—your choice.

Regards,
Adrien

> On Dec 15, 2018, at 5:37 PM, Tom Balaban <tbalabanjr at gmail.com> wrote:
> 
> Many thanks Adrien.
> 
> I think your explanation works except for a minor detail, after the initial payment is exhausted all payments are after the fact.
> 
> Each month I submit a report of participant count for the prior month. They will then send me a bill for the amount due.
> 
> I don't think there is anything prepaid regarding these subsequent payments so I'm pretty sure I can just expense them.
> 
> Best,
> Tom
> 
> ------ Original Message ------
> From: "Adrien Monteleone" <adrien.monteleone at lusfiber.net>
> To: "Gnucash Users" <gnucash-user at gnucash.org>
> Sent: 12/15/2018 4:41:12 PM
> Subject: Re: [GNC] How To Handle Prepayments
> 
>> 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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>> 
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