openerp-expert-accounting team mailing list archive

[Frédéric Clementi <frederic.clementi@xxxxxxxxxxxxxx>]

@ Eric :
 -- That is my problem today. Those modules are great but rely on the
default AR account which is incorrect in my opinion.
This is not a technical issue (actually Guewen answered perfectly the
technical question) but an accounting/SOP issue --

FYI you cannot accuse me to be too technical... I am not a developper !
actually I have an account background    :)

Joke appart, to sum up my message below :  do not create a prepayment
account instead of using the usual AP/AR accounts.

I used MG comments to explain my point :


 Hello
> Pre-payments transactions differ from cut-off issues!
>
No. Be careful to accounting terminology. Let clarify what I mean with that
example found on the web here :
http://www.accountingcoach.com/blog/prepaid-expense). I rephrased it to
simply :

*01-dec *: you pay your next 6 months insurance for 6000 $ -> debit
'Prepayment account' - credit 'Bank account' for 6000$ (note that there are
no expense recorded in my books at this stage)

*31-dec* : as it is the last day of your fiscal year, you want to exclude 5
months paid but related to the next fiscal year -> Debit 'Insurance expense
account' - credit 'Prepayment account' for 1000$ (*this is a cut-off
entry*-> I record an expense of 1000$ on my current fiscal year)

*01-jan* : I reverse my cut-off enty -> debit 'Prepayment account' -
credit 'Insurance expense account' for 1000$

*01-mar* : imagine that I receive my insurance invoice that day ->
debit  'Insurance expense account' - credit 'Prepayment account' for 6000$


>
> A prepayment is made at the request of a partner as a necessary condition
> for him to deliver the service or the product; as such it is recognized in
> the books as a payment in advance (for an invoice to be received); it is
> usual to receive a pro-forma invoice (for ecommerce the transaction amount
> is either sent by email or just stated on a web page (that can be printed
> offline).
>

I found this stated on some website as well but again be carefull with this
is partially wrong.
1st point - a pro-forma invoice is not a legal document that you cannot use
in your books. So, the accounting entry to be recorded is a basic payment
-> debit 'payable account' - credit 'bank account'  (if you pay money to a
supplier) OR debit  'bank account' - credit 'receivable account' (if you
receive money from a customer).

2nd point : if you recevable money from a customer for some goods you have
delivered and that you have not invoiced yet you do not have to use a
prepaid account ... you have to use instead the usual receivable account.

Conclusion : a prepaid account must be use for cut-off purpose in order the
fullfill the segregation of period principle when you paid something that
must must linked to a other fiscal year .....but not to record any payment
that you receive or you pay before the invoice booking like a simple goods
delevery.

Hope this clarify my point.

Frederic