Thanks David, I’m already following these procedures as you outline them in 1-4.
My hangup is in #2, I’m posting the pre-paid bill and thus increasing Assets:CurrentAssets:Pre-PaidExpenses:AutoInsurance before I actually acquire the pre-paid asset. Until I make the payment I really don’t have that asset. The insurer doesn’t have any of my money. No court would award me any value on an unpaid bill. I doubt any insurer could book the liability on their end until they had my cash in their hands. (treated as a customer-deposit most likely) I don’t see any way around this other than two options: 1) just wait to post until I make the payment. 2) create an otherwise pointless ‘holding’ account to post to instead of the pre-paid asset, then make a transfer from that account to the pre-paid asset when I really pay the bill. However, I can’t make heads or tails of where that holding account should be classified. I don’t have new assets just for receiving a bill. I don’t yet have any expense (to be done periodically over time) and I don’t have any liability because I haven’t received anything of value not paid for.(a company doesn’t earn revenue and you don’t incur liability to them just because they generated a piece of paper and mailed it to you. They have to actually deliver a good or service to you.) I get the difference between accrual and cash basis, but this seems to be one case that is impossible to be accrual. It seems it always has to be cash basis. I think since this only happens twice a year, I’ll just handle that one case with #1. I’ll enter the bill in GnuCash, forego the Bills Due Reminder, and just post and pay together on the same day. Regards, Adrien > On Dec 14, 2017, at 1:12 AM, DaveC49 <davidcous...@bigpond.com> wrote: > > Hi Adrien, > > I am assuming here you mean when you are pre-billed by a supplier of a good > or service. What follows is not necessarily restricted to insurance or even > to prepayment but just uses these to illustrate the principle. If you mean > that you are pre-billing a client, my apologies and please ignore. > > I think the issue is not that there is a single event associated with things > like prepayments but that there are multiple events. If one wishes to meet > the full requirement to provide an accurate reflection of events in your > accounts, for example to handle the issue of pre-billing of insurance for a > future accounting period you have (at least) the following events which you > record in your accounts as they occur unless of course > regulations/legislation specifies otherwise. > > 1. Insurer issues an invoice to you. You have no knowledge of this until > you receive it. This doesn't appear in your accounts. > > 2. You receive an invoice from the insurer. It will specify a due date and > terms and conditions, possibly a discount if paid in advance or interest if > not paid by the due date and an amount to be paid at a future date. You > raise a Bill in your accounts. I would choose the date you receive the > invoice from the insurer > as the post date as this is when you become aware of the obligation to make > that future payment and receive in return insurance cover for an agreed > period, which may or may not be from the due date even though it generally > is. You would record the bill with a debit to an Asset:PrepaidInsurance > account and a corresponding credit to Liability:A/P created by posting the > bill. You could equally use the date on the invoice issued by the > insurer/supplier, unless there is a significant difference between the date > it was issued and the date you received it, but the latter is really the > most significant event associated with the bill for your accounts. (Dates on > line items in the invoice from a general supplier to you may be relevant > however if you are matching a particular expense to specific items of > revenue of course). > > 3. You pay the Bill at or before the due date. (Ignore the discount > possibility.) Again I would use the date I raised a cheque, authorised a > transfer from my account, handed over cash etc. depending on how I paid the > bill. In the case of a cheque or where there may be a significant delay in > an electronic funds transfer after you have authorised it, you may use a > temporary clearing account to record that you have made the payment and then > clear that account when the funds are actually transferred (cheque cleared > or electronic transfer from your account recorded if this level of detail is > of importance to you). In the simplest form this would be a credit to your > Asset:Bank account and a debit to the Liability:A/P at the date you made the > payment. > > 4. The final step would be to expense the prepayment at periodic times > during the period of the insurance with a credit to Asset:PrepaidInsurance > and a debit to Expense:Insurance. > > By capitalising the insurance prepayment, it can be carried through over > into a future accounting period and expensed in that period. > > I am not sure what you meant by "My issue isn’t the idea of a pre-paid > asset, my issue is that it is increasing when I post the bill, not when I > pay it." I guess you mean the A/P balance by it or do you mean the Expense > account (or an Asset account if it is prepaid). If it is the A/P balance, > then that is the correct expected behavior as Derek has pointed out. If the > posting date is not relevant to matching particular income then capitalising > it to an asset account then expensing it at the relevant date wil do the > trick. Next issue is whether the asset account should be under current > assets, if it is to be expensed within the current period or in non-current > assets where it is to be expensed in a succeeding period. > > > > ----- > David Cousens > -- > Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html > _______________________________________________ > gnucash-user mailing list > gnucash-user@gnucash.org > https://lists.gnucash.org/mailman/listinfo/gnucash-user > ----- > Please remember to CC this list on all your replies. > You can do this by using Reply-To-List or Reply-All. _______________________________________________ gnucash-user mailing list gnucash-user@gnucash.org https://lists.gnucash.org/mailman/listinfo/gnucash-user ----- Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
