Solution Properties
Solution ID:
200427112156300
Last Modified Date:
Wed Mar 23 14:23:50 UTC 2022
Taxonomy Path:
Case category//How do I...//processing
Author:
[email protected]
Record manual prepayments and accruals
Description

For example, if you receive an invoice for your quarterly rent in January, the January overheads on your profit and loss shows all the rent for the quarter, but nothing in February and March. After posting your adjustments, January to March show equal amounts for rent.

NOTE: In Sage 50 Accounts Professional, you can post prepayments and accruals automatically as part of the month end routine. If you'd like to upgrade, leave your details and we'll be in touch.

Cause
Resolution

Create the prepayment and accrual nominal codes

The following nominal codes are used for prepayments and accruals.

Nominal CodeNameManagement ReportSection of Reports
1103PrepaymentsBalance SheetCurrent Assets
2109AccrualsBalance SheetCurrent Liability
  1. Click Nominal codes, then click New.
  2. Complete the nominal record details as follows:
    • N/C - Enter the number for the nominal code you want to create, for example, 1103.
    • Name - Enter the name for the nominal code, for example, Prepayments. 
  3. Click Save.

If required, repeat the above steps to create further nominal codes.

Post manual prepayments

NOTE: For the purpose of this article, the following example will be used. On 1 January, a bank payment of £/€3,000, with no VAT, for rent is posted to nominal code 7100 to cover the following three months. The profit and loss report is run monthly.

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Step 1 - Record the actual transaction

When the actual payment or invoice is made or received, you should post this as a purchase invoice or bank payment, with the usual net and VAT values, if relevant. This procedure assumes you've already posted this transaction.

TIP: If the actual payment is to be split over more than one month, this should be reflected by part paying the purchase invoice with several purchase payments.

At this point the rent on your profit and loss will look like this:


JanFebMar
Rent3,00000

Step 2 - Reverse the effect of the bank payment or purchase invoice

Once you have posted the actual transaction you then need to reverse the effect from your profit and loss onto the balance sheet nominal code for prepayments, by default 1103.

  1. Click Nominal codes, then click Journal entry.
  2. Enter the reference and date for the journals, then enter the relevant information to record the reversal, for example:
    N/CNameDetailsT/CDebitCredit
    7100RentPrepayment ReversalT9
    		3,000
    1103PrepaymentsPrepayment ReversalT93,000


    NOTE: You should use the same date as the original bank payment or purchase invoice.

  3. Click Save and Close.

At this point the rent on your profit and loss will look like this:


JanFebMar
Rent000

Step 3 - Post the prepayment journals

For each month you can now move the monthly value back from your prepayment nominal code to the rent nominal code on your profit and loss.

Note: You need to post these journals in line with the periods that you run your profit and loss.

EXAMPLE: If you run you profit and loss monthly, post the journals monthly, if you run your profit and loss quarterly, post them quarterly. If the period is partly in the current year and the rest in the next year, apportion the adjustments to reflect this.

  1. Click Nominal codes, then click Journal entry.
  2. Enter the reference and date for the journals, then enter the relevant information to record the reversal, for example:
    N/CNameDetailsT/CDebitCredit
    1103PrepaymentsMonthly PrepaymentT9
    		1000.00
    7100RentMonthly PrepaymentT91000.00

    NOTE: Enter the date as the last day of the month you are posting. 

  3. Click Save and Close.

You must repeat this procedure for every month affected by the prepayment. In this example, this would be for the three months from January to March.

At this point the rent on your profit and loss will look like this:


JanFebMar
Rent1,0001,0001,000

Post manual accruals

Demo - Introduction to Accruals.

To post a manual accrual you need to:

  • Post the accrual journals - Post the value to your relevant expenses nominal code on your profit and loss, from the accrual nominal code on your balance sheet. You need to post these journals in line with the periods that you run your profit and loss. For example, if you run you profit and loss monthly, post the journals monthly, if you run your profit and loss quarterly, post them quarterly. If the period is partly in the current year and the rest in the next year, apportion the adjustments to reflect this. 
  • Post a journal to reverse the accrual - The balance on the Accruals nominal code increases every month, until the final month when you post a reversal. The reversal clears the value of the accrual from the Balance Sheet report, and changes the month's balance on the relevant overhead nominal code to a credit value. This is corrected when you post the bank payment or purchase invoice.
  • Post the bank payment or purchase invoice - When you receive the actual invoice or make the payment you should post this with the usual net and VAT values, if relevant. Prior to this posting, the relevant overhead nominal code has a credit balance. When you post the bank payment or purchase invoice it changes the final month's credit balance to a debit balance. As the accrual value is an estimate, the actual invoice value may vary from the accrual amounts posted. This difference appears on the final month. This article does not detail how to post the bank payment or purchase invoice.

NOTE: Starting in January you pay for your electricity every three months in arrears. The average charge is £/€300. When you receive the actual bill, it is for £/€350. The profit and loss report is run monthly. 

Post the accrual journal

  1. Click Nominal codes, then click Journal entry.
  2. Enter the reference and date for the journals, then enter the relevant information to record the accrual, for example:
    N/CNameDetailsT/CDebitCredit
    7200ElectricityMonthly accrualT9100.00
    2109AccrualsMonthly accrualT9
    		100.00

    NOTE: Enter the date as the last day of the month you are posting. 

  3.  Click Save and Close.

Each month when you post this journal, a debit balance is posted to the relevant overhead nominal code on the Profit and Loss report, and a credit balance is posted to the accruals nominal code on the Balance Sheet report. The accrual is a current liability. At the end of the accrual period, you should reverse the effect of these postings from your accounts.

NOTE: If you run the profit and loss report quarterly, you don't have to post the accrual journals monthly. For example, if you run the profit and loss for the quarter starting January, you can post a accrual journal for the three months, at the end of March.

To post the accrual reversal

  1. Click Nominal codes, then Journal entry.
  2. Enter the reference and date for the journals > enter the relevant information to record the reversal, for example:
    N/CNameDetailsT/CDebitCredit
    2109AccrualsAccrual ReversalT9300.00
    7200ElectricityAccrual ReversalT9
    		300.00

    NOTE: This should be dated in the last month of the accrual period.

  3. Click Save and Close.
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