[GNC] Pre-Payments into Liabilities

[Stan Brown]

On 2022-09-11 15:51, Vance Turnewitsch via gnucash-user wrote:
> I use GnuCash for a small school. One of our parents paid their entire tuition amount at the beginning of the year. I have been fiddling with how to record this.
> 
> We bill monthly; therefore, for the payment that doesn't have a receivable yet, shouldn't it go into a liability account? Using the "Process Payment" dialog results in an accounts receivable with a negative balance. This seems odd to me, but it has been some time since I took accounting. In GnuCash's system, is an accounts receivable with a negative balance akin to a liability?

Hi, Vance!

A useful way to answer questions like this is to ask yourself, "What
would I do if I were doing all my bookkeeping with pen and ink in one of
those huge ledger books?" Once you've answered that question, you can
then take up the question of "How would I accomplish that in Gnucash?"
but usually once you answer the first question then the second one is
obvious.

Have you ever overpaid a bill? The next month they send you a statement
showing a negative balance, right? I see no reason why you couldn't have
a negative balance in an account receivable. (Your bill is a liability
to you, but it's a receivable to your supplier, and they don't have a
problem with a negative receivable.) And one benefit of Keeping
everything in a normal receivable account is that when you accrue the
tuition for all the students, you don't have to do anything different
for _this_ student: the tuition will simply reduce the negative amount.

On the other hand, I would not create a liability account because (1)
you are then treating this student's accounting differently from every
other student's, both when recording this prepayment _and_ when
recording tuition accrued; and (2) liability accounts are almost always
for things you expect to have to pay off eventually.

That's how I would treat this transaction. I'm not an accountant. But I
suspect pretty strongly that nobody will give you any grief about which
way you handle it, as long as any reports or statements of parent
account that you generate make sense.

Stan Brown
Tehachapi, CA, USA
https://BrownMath.com