In Australia, our tax laws recognise 2 quite different
"pre-payments".
1. An advance (or progress) payment to be applied against
future supplies of goods or services. Such payments include
GST. Normal attribution rules apply.
2. Deposits received to secure the future delivery of goods
or services might also be applied towards payment for such
supplies. eg Rental Bonds that get forfeited. Security
deposits do NOT include GST until forfeited.
See Tax Ruling GSTR2006/2 for much more clarity.
Warning. Other countries laws will be different.
Conclusion. There is no single correct way to handle
prepayments/deposits in SQL-L. Discuss with your accountant
the right transaction/s for your circumstances.
HTH
David J
> Accounting entries for prepaid revenue:
>
> 1. Invoice to Customer
> Debit customer (balance sheet)
> Credit prepaid revenue account (balance sheet)
>
> 2. Receipt of Cash
> Debit cash
> Credit customer
>
> 3. Revenue Recognition
> Debit prepaid revenue (balance sheet)
> Credit revenue (P&L)
>
> You do 3. each time the revenue is to be recognised (i.e
> monthly, quarterly whatever).
>
> If revenue recognition depends on cash receipt then don't
> do 3. unless the customer has paid.
>
> Hope this is clear....
>
>
>
> Michael Hasse wrote:
> > All the responses make sense and are greatly
> > appreciated! (And I actually have taken some
> > accounting classes, but they were years ago. :)
> > What I am trying to figure out is how the bank
> > account balance in the GL can reflect the funds that
> > are posted to the liability account (s)...? E.g.
> > somebody purchases a prepaid block of time for $10k,
> that money certainly hits the bank account in the real
> > world but if it's posted to the liability account in
> > SL, won't our bank balance in SL fail to show it?
> >
> >
> > Thanks!
> >
> > Michael
> >
> >
> > On Feb 14, 2007, at 3:02 AM, Roy Nicholl wrote:
> >
> >
> >> Sorry about the confusion Eberhard, I was merely
> referring to the >> mechanics of recording prepayments and
> the similarity to recording >> collected tax - and action
> which Michael may already be familiar ... >> I did not
> imply, not intend to imply, that you were paying tax on
> the >> prepayment ... just that the patter was similar.
> >>
> >>
> >> On 14-Feb-2007, at 00:20, Dr Eberhard Lisse wrote:
> >>
> >>
> >>> Michael,
> >>>
> >>> The money is in the bank. What we are discussing here,
> is how you >>> *account* for it.
> >>>
> >>> It first is a liability, but still in the bank
> account. Once you >>> "earn"
> >>> it by "paying" an invoice, it still is in the bank
> account, but it >>> becomes revenue.
> >>>
> >>> I would perhaps look at some reading material about
> accounting... >>>
> >>> Roy,
> >>>
> >>> I do not understand your contribution. We are not
> discussing expenses >>> here, but revenue. And, you can
> not pay tax on pre-payment, because >>> you
> >>> haven't provided a service, sold anything, i.e. you
> did not >>> generate an
> >>> invoice. But then maybe I should read more ont he
> subject :-)-O >>>
> >>> greetings, el
> >>>
> >>> on 2/14/07 3:27 AM Roy Nicholl said the following:
> >>>
> >>>> Prepaid expenses are treated pretty much the same as
> the sales tax/ >>>> VAT you collect on behalf of the
> government. The money is paid >>>> into
> >>>> your operating account, but you also credit the Tax
> account (a >>>> liability) because the money does not
> belong to you. When you remit >>>> the tax to the
> government, you pay it out of the tax account. >>>>
> >>>>
> >>>> On 13-Feb-2007, at 20:32, Michael Hasse wrote:
> >>>>
> >>>>
> >>>>> Mkay, that makes sense, but if there's a GL debiting
> the bank >>>>> account, how does the bank account get
> credited again? (Maybe I >>>>> should just try it and see
> what happens! Nothing like the hands-on >>>>> approach,
> eh? :) >>>>>
> >>>
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