Modelling Prepayments & Accruals

We often come across organisations who need to model prepayments and accruals of income and/or expenses. Castaway makes it easy to model these transactions, simply by modifying the invoice timing of any Sales or Costs element.  In this note, we’ll step you through modelling a basic expense prepayment.

Let’s assume we want to model an expense prepayment with:

  • Profit & Loss expenses of $5,000 per month
  • Invoices received quarterly in advance (in March, June, September and December)
  • Invoices paid the month after receipt (so the September invoice is paid in October)

Download a sample file below, or follow these steps to try for yourself:

  1. Create a Costs element in the Castaway Chart of accounts
  2. Double click on the element name to go into the Data Entry screen
  3. Click on the Costs button to open the Element Properties dialog box
  4. From the Costs tab, set the Invoicing Method to Periodic Prepaid Invoices
  5. Set the Invoicing Cycle to 3 months
  6. Set the Cycle End Month to September
  7. Click OK to close the Element Properties dialog box
  8. Add $5,000 per month to the Enter Expense line
  9. Enter 30 as the Days Credit for each month
  10. Note that Castaway calculates an invoice every third month (including GST/VAT) and then pays each invoice the following month
  11. Click Save & Close to return to the main screen
  12. Review the Profit & Loss Report, the Balance Sheet and the Cash flow Statement to confirm the numbers appear as you would expect

Step 4 is the most important decision point. The Invoicing Method lets you choose between prepayments or accruals. You can also decide between using periodic (automatic) calculations or manual entry. If using either of the manual entry options, all invoice values should be entered exclusive of GST/VAT.

To model prepayments or accruals for income, start with a Sales element and then use the steps above.

 

Download a sample file for Modelling Prepayments & Accruals here:

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