This documentation is a suggestion on how you could accrue a one-time annual (or any period beyond 1 month) expense on a monthly basis and against the corresponding customer service contract.
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Overview | Best Practice Steps | Other Helpful Info | Related Alerts
Overview
Overview
While there is no perfect and easy way to accrue expenses on a monthly basis against a contract in e-automate, there are workarounds that can be done which are detailed in this documentation post. It is common especially in Managed Service Contracts for a dealership to purchase an annual subscription that they bill to their customers monthly. In doing so, the expense sits in 1 month for the dealer, but the revenue is spread out over months of time.
To right-size this and spread the cost out into the same months as the revenue, we suggest (1) journaling the expense to a current asset balance sheet account, (2) creating vendor invoices against the cogs account and contract # that are dated in the months you want to accrue the cost in, (3) creating credit memos against the current asset balance sheet account that are dated in the months you want to accrue the cost in, and (4) applying the credit memos to the invoices. Below are detailed steps on how to accomplish this.
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Best Practice Steps
Best Practice Steps - start to finish
***The invoices, credit memos and payments created using the process below must all have matching dates to ensure no odd balances per fiscal period. For example, if you're accruing $5,000.00 over a 5 month period you'll create 5 invoices and 5 credit memos that are dated in the 5 different months you wish to accrue. Then, the payment used to apply them will match the same month. For specific example, you have an invoice dated 11/1, a credit memo dated 11/1 and the payment when applying those together should be dated 11/1, and you'll continue this for the 12/1, 1/1, 2/1 and 3/1 dates.***
1. Go the journal entries module in e-automate and click to create a new journal entry
2. Add two line items to the journal entry; 1 credit to the COGS account the expense is currently sitting in and 1 debit to the current asset balance sheet account. Click OK to create journal entry.
3. Go to the Accounts Payable Invoices module and click to create new invoice
4. Create invoices against the COGS account for the monthly amount with the contract and customer selected.
***The vendor you use should be one that you created for this process only. This will help you keep track of transactions for this process and the vendor balance should always be $0.00.***
Update the fields in red. You'll want to allocate the COGS amount you want per month in the Amount field and update the date to match the month you want the COGS accrued in.
5. Repeat this step until all months are created, ensuring you update the invoice date as you go along. Note that you can use the Copy feature to create multiple documents, just be sure to change the dates as you create them.
6. Create a vendor credit memo against the current asset account for the same monthly amount. Use the same vendor from step 4.
Go to the Accounts Payable Invoices module and click to create new invoice (Credit Memo)
7. Create credit memos against the current asset account for the same amounts and dates as the vendor invoices created but do not select customer and contract. Use the same vendor from step 4. Update the fields in red.
8. Repeat this step until all months are created, ensuring you update the invoice date as you go along. Note that you can use the Copy feature to create multiple documents, just be sure to change the dates as you create them.
9. Go to the Record Vendor Payments module
10. Select the vendor that you created the CM and Invoices under and click Add to select the first pair of invoice and credit memo. Update the date of the payment to match the first pair of CM and invoice and choose payment method of Cash.
11. Continue to create payments in order to apply the remaining months to each other, ensuring the payment date matches the date of the CM and invoice you are applying.
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Other Helpful Info
Other Helpful Info
Multiple vendor invoices and credit memos can be postdated in order to write to future fiscal periods. This can be done for the entire year or life of the asset. Creating the payments to offset the invoice and credit memo can be done in the same/current period because the payment is clearing offsetting A/P entries. The future invoice and credit memo will also offset one another and not have an impact on the balance sheet. Applying the payment will remove them from the accounts payable subledger.
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Related Alerts
Related Alerts
None.
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