How do I spread a prepaid cost or income over months?
Make a Recurring Entry Template with the whole amount on its lines and tick Deferral. Each month Process Recurring Entry posts one equal share. When every share has posted, the template stops.
A deferral is the opposite of an accrual. The money moves now, but the cost or income belongs to later months. Example: a year's insurance paid in January sits on Prepaid insurance, and one twelfth of it becomes expense each month. In SAP Business One this is a recurring transaction. Here it is a Recurring Entry Template.
Steps
- On Recurring Entry Template: Template, Template Date, journal, the local currency, Period frequency monthly, Number of occurrences = the number of months (12 for a year), Date From the first month, Periodic Entry On end of month.
- Tick Deferral.
- Enter the lines with the WHOLE amount: debit Insurance expense 100,000, credit Prepaid insurance 100,000. Save.
- Each month end, run Process Recurring Entry with the last day of the month. It posts the month's share. Save.
What posts
| Document | When | Debit | Credit |
|---|---|---|---|
| Process Recurring Entry | Save, each month | Expense: total ÷ occurrences | Prepaid: total ÷ occurrences |
Example
Insurance of 100,000 paid on 1 January for a year. The template has 12 occurrences and Deferral ticked.
| Month | Debit Insurance expense | Credit Prepaid insurance |
|---|---|---|
| January | 8,333.33 | 8,333.33 |
| February | 8,333.34 | 8,333.34 |
| March | 8,333.33 | 8,333.33 |
| ... | ... | ... |
| December | 8,333.33 | 8,333.33 |
| Total | 100,000.00 | 100,000.00 |
Each share is rounded so that the shares posted so far always add up to the right part of the total, so the twelve vouchers add up to exactly the template's amount. Every voucher balances on its own.
For income received in advance, such as rent collected for six months, it works the same way: debit Unearned rent, credit Rent income, 6 occurrences.
Deferral ticked or not
| Deferral not ticked | Deferral ticked | |
|---|---|---|
| The lines hold | One month's amount | The whole amount |
| Each run posts | The lines as they are | The lines ÷ Number of occurrences |
| Total posted | Lines × occurrences | The lines, exactly |
Good to know
- A reversed share is posted again. If you reverse one month's run, that share comes up in the next run.
- A missed month is caught up on the next run, dated that run's Till Date, like any recurring entry.
- Keep the template in local currency. Process Recurring Entry posts at exchange rate 1.
- Once the template has been processed it cannot be changed. If the amount changes, make a new template for what is left.