Overview of Prepayments
Important: Before posting any prepayment documents, it is essential to check that all the accounting periods within the prepayment timeframe exist, and have an access level of 8 or less. If this is not the case, prepayments may be posted to future periods, or to the Register period, which can be time consuming to rectify. For information on how to check the access level, please see Checking Accounting Period Access Levels (v2, v4, v6).
If you experience any problems with prepayments as a consequence of accounting periods being closed or having the wrong access level, please see Dealing with Prepayments Posted to the Wrong Period .
In the following prepayment example, an annual insurance policy costs £12,000 and covers a 12 month period. The invoice would typically be prepaid as follows:
| Period 1 | £1,000 |
| Period 2 | £1,000 |
| Period 3 | £1,000 |
| Period 4 | £1,000 |
| Period 5 | £1,000 |
| Period 6 | £1,000 |
| Period 7 | £1,000 |
| Period 8 | £1,000 |
| Period 9 | £1,000 |
| Period 10 | £1,000 |
| Period 11 | £1,000 |
| Period 12 | £1,000 |
| Total | £12,000 |
Prepayments should be entered at the time the applicable document is posted (in most cases, an invoice) to ensure that the system calculates, them allocates the correct expenditure to the applicable accounting period. This is achieved by entering payment start and end dates in the applicable document, typically a Non-Order Purchase Invoice document. The system then runs a rule which automatically allocates the correct prepayment portion to the applicable accounting periods.
Prepayments can also be recorded in Purchase Credit documents (to ensure that any applicable prepayments are reversed where a supplier credit note is received) and Miscellaneous Payments documents (although this is rarely required). Finally, if an invoice has already been posted but prepayments are required, these can be manually entered using a Manual Prepayment Document. For more information, please see Posting Manual Prepayments Using a Document Input Form .
What Happens When the Document is Posted
Prepayments are posted as reversing journals. Once the applicable document has been posted, the system automatically posts two types of document:
PB – Prepayment Move to Balance Sheet document
A PB - Payment Move to Balance Sheet document is posted which transfers the balance from the applicable expense nominal and account, into the prepayment nominal on the balance sheet.
PM – Prepayment Movement document:
Based on the prepayment start and end dates previously entered, the system calculates the number of accounting periods within the timeframe, together with the amount that should be allocated to each accounting period. A PM - Payment Movement document is then posted for each applicable accounting period.
Each of these documents reverses the expenditure from the balance sheet nominal, back to the expense nominal and account.