We often come across organizations that 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 article, we’ll step you through modeling a basic expense prepayment.
Assumptions
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 are paid the month after receipt (so the September invoice is paid in October)
Steps
- Create a Costs element in the Castaway Chart of Accounts
- Click on the element name to go into the Element Data Entry screen
- Under Invoice, set the Invoice Method to Periodic Prepaid
- Set the Invoice Cycle to 3 months
- Set the Cycle End Month to September
- Add $5,000 per month to the Enter Expense line
- Leave Days Credit at the default value of 30 days
- Based on the above settings, Castaway calculates an invoice every third month (including Taxes) and then pays each invoice the following month
- Review the Profit & Loss Report, the Balance Sheet, and the Cashflow Statement to confirm the numbers appear as you would expect
Step 3 is the most important decision point. The Invoice Method lets you choose between Prepayments or Accruals.
The different options can be surmised as follow:
| Periodic Prepaid/Accrued | An automatic calculation of your invoices when you have a known and consistent invoicing cycle |
| Enter Days Prepaid/Accrued | Manual entry of the number of days that have been prepaid or accrued |
| Enter Prepaid/Accrued Balance | Manual entry of the forecasted balance exclusive of Taxes |
To model Prepayments or Accruals Income, start with a Sales element and then use the steps above.
If you require assistance, please reach out to our Customer Success team.