Unearned Income

Kinetic ERP
1

How to handle the following?
Customer wants to prepay their account. We will pull from the credit to apply to each order that they place until the account is depleted. What is the best process to enter and track this? Putting the payment on account through Cash Receipt Tracker credits AR, we need it to credit Deferred Revenue. How do we make this happen?

2

Hi Jamie, I believe if you do an Advanced Billing Invoice and mark it as Deferred Revenue the system should credit your Deferred Revenue account.
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Hope this helps

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3

This doesn’t debit cash and it requires a Sales Order number. There is no sales order, it’s just a lump sum payment for us to draw from as orders come in. Maybe I am missing something?

4

I would have thought this is not unearned income - there is no tax liability, for example, and you have no invoice for payment nor any specific upcoming sales order(s) to link it to - it is simply an “on-account” balance to draw down against in the future. It is just not your money yet :slight_smile:. But (and this is a non-accountant talking) we do a lot of work with project-related companies so I am reasonably familiar with GAAP and IFRS considerations - so it doesn’t feel like revenue at all yet.

If this was an advance payment against an upcoming project then then we could handle that in Advance Project Management, but if it really just is that your terms of business for the customer is that they pay you in advance for unknown future “stuff” then there are a couple of options that come to mind. I think perhaps just do a Cash Receipt Entry and don’t apply the payment to any invoice. That should simply credit AR Control and debit Bank. Or perhaps even use the AR Payment Instrument functionality, and then draw down against it using that mechanism?

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5

Thank you Mark, your explanation was clarifying. Our initial approach was a simple cash receipt, on account. We have never used the PI feature and I believe the effort to learn a new module for just one customer is a wasted effort. This arrangement was at the customers request, so I do not foresee this situation ever happening again.

6

Hi Jamie,
you could do this:

  1. have a special GL control (of AR Type) for this type of customer.
  2. on that GL account put the unearned income account on the prepayment context;
  3. use the cash receipt “on account” to add money in there;
  4. when you ship goods, normal AR invoice is created. If you send the invoice, you might have to customise the form to also show how much of prepayment is still available.
  5. This invoice gets paid by partially matching it against the credit note created from the “on account” cash receipt.
  6. Once a month send a AR open invoice list to the customer to see his balance.
  7. As long as total open invoices is negative, you still have money from the customer.

Now thre is a small catch - at end of month not all money in the bank is yours, some belongs to the customer so there might be a bit of work involved with month end reporting but it could work without an extra module implementation.