Re: [SL] How to account for pre-payments

[Jersey <je...@ib...>]

Hi there,

I am not an accountant... but I have sometimes 50% of invoice value
prepayments long before the final delivery is due. I treat them like a loan
(At the end of the day actually it is :)). I created a "service" item with
income pointing to liability account called "deposit received". I invoice
the client with this item before finilising the contract. And on final
invoice I credit that item. This way I do not have a false, artificial
profit/loss in case I receive the order (and payment) one financial year and
I deliver the goods next financial year.
Reverse applies when I do prepayment.

Am I correct? Any comments.

Regards

-----Original Message-----
From: Mark Phillips [mailto:mar...@mo...] 
Sent: 07 May 2009 01:59 AM
To: sql...@li...
Subject: Re: [SL] How to account for pre-payments


On May 6, 2009, at 10:31 AM, Paul Tammes wrote:
> Why prepay at all? Especially an accountant should see the logic  
> that one
> has to send an invoice in order to get paid.

I respectfully disagree. It is quite common for many businesses to  
require a retainer or "advance billing deposit". Some will not begin a  
project until funds sufficient to cover the anticipated work are  
deposited, even as much as 100% of the anticipated billing. Some of  
these will produce an invoice based on an estimate or contract, then  
amend if required.

Others do not invoice until the end of a project. In the meantime, the  
estimate serves as the controlling document, with funds advanced and  
charges tracked against the estimate. At the time of invoice, the  
charges and payments are tallied and posted so they appear on the  
invoice and are "booked" in accordance with the accounting policies of  
the client.

FWIW, I have no idea how this fits into SL, so my comments are more  
general in nature. That said, I have created such processes in the  
software applications we maintain and develop for clients. As another  
poster wrote, the point is to make sure the value of the service or  
product is compensated, or more plainly, to make sure you get paid.


Mark Phillips

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