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Wednesday, February 17, 2010

Invoices with Accounting Rules

You can create invoices that span over several accounting periods. The accounting rule determines the accounting period in which the revenue distributions for the invoice or the Invoice lines are stored. The invoicing rule determines the accounting period in which the receivable amount is stored. You can either manually assign invoicing and accounting rules to transactions you create or import these rules into Receivables using the AutoInvoice utility.
You can also use the accounting rules to determine revenue recognition schedules. The duration over a predefined number of periods and variable duration lets you define the number of periods during invoice entry.
The invoicing rules determine when to recognize the receivables for invoices that span over multiple accounting periods. There are two types of invoicing rules, bills in advance and bills in arrears.

Bills in Advance

The bills in advance rule is used to recognize the receivables at the time when the bill is raised. It is an invoice created before the revenue is recognized.
For example, if your company provides services and has to enter into a contract for the next three months, then you should recognize revenues in that particular month even though you may have received the payment when you started the service. The invoice raised is a bill in advance and revenue is recognized in the months ahead. For example, in April you raise an invoice of $1,500 for a three-month contract. The Accounting rule is three months fixed duration. The entries passed for this invoice are:
·         In April, when the invoice is raised, the receivable account debit is $1,500 and the unearned revenue credit is $1,500. The unearned revenue debit is $500 and the revenue credit is $500.
·         In May, when the invoice is raised, the unearned revenue debit is $500 and the revenue credit is $500.
·         In June, when the invoice is raised, the unearned revenue debit is $500 and the revenue credit is $500.

Bills in Arrears

You use the bill in arrears rule if you want to record the receivables at the end of the revenue recognition schedule.
For example, for the invoice of $1,500 raised for a three-month contract, the accounting entries passed are:
·         In April, when the invoice is raised, the unbilled receivable debit is $500 and the revenue credit is $500.
·         In May, when the invoice is raised, the unbilled receivable debit is $500 and the revenue credit is $500.
·         In June, when the invoice is raised, the unbilled receivable debit is $500, the revenue credit is $500, the receivable debit is $1,500, and the unbilled receivable is $1,500.
You need to run the revenue recognition program to generate the revenue distribution.

Note
If the GL date for a transaction is in a period that has a status of either Closed or Close Pending, then Revenue Recognition changes the revenue GL date to the first subsequent period that has a status of Open, Future, or Not Open.

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