Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Adrien Monteleone]

> On Dec 17, 2017, at 11:07 PM, Dale Alspach  wrote:
> 
> Adrien,
> 
> It seems to me that what you want is not an accounting solution but a
> software enhancement. I believe that you need to say exactly what you
> want in a bugzilla RFE. For the issue you describe below what seems to
> be required is a special version of scheduled transactions which will
> post a bill. Your purpose seems to be to delay the  increase in assets
> and liabilities until a time period near to the date that the bill will
> be paid.
> 
I outlined it in the very first post of the thread. There are two separate 
issues here really. The pre-paid issue is one that requires special treatment. 
I’d have to think it through more and look at the code to see how it might work.

As a first stab at it, perhaps a checkbox in the posting dialog, or the 
bill/invoice creation dialog that this is for a "pre-payment." The result would 
be for GnuCash to treat this similar to an ‘open but not posted’ bill/invoice, 
thus it won’t enter any accounts yet, but it will still trigger the Bills Due 
Reminder and still show up in vendor/customer reports. OR change how the Bills 
Due Reminder works and have it operate on any ‘active’ open bill, not just 
posted ones. (you can mark a bill ‘inactive’, this might be useful in this 
case) I suspect the first option would be less disruptive, however not as clean.

Note, I don’t want to ‘delay' the increase in assets and liabilities at all. 
There is no increase in assets in this case and there is never a liability that 
enters the picture. This is a shift in assets - from Cash to Pre-Paid Expense.

What is happening right now is that there IS an increase in assets and 
liabilities. (until the bill is paid) This is an error.

This is more like a transfer that involves a line-item bill from a vendor for 
services not yet rendered. (a deferred expense)

> I believe that you wrote something incorrect here:
>> Additionally, as noted in another reply, ‘bills’ for pre-paid expenses
>> should never hit AP at all. They aren’t ever liabilities. They are (as
>> yet unpaid) deferred expenses, not accrued expenses.
> 
> It is not the pre-paid expenses that are being entered into AP it is the
> obligation to pay for them that is in AP and that is a liability. From
> an accounting perspective this is exactly what is required. The not yet
> existing asset pre-paid expense is being offset by a corresponding
> liability so that the net on the balance sheet is 0. Once the bill is
> paid the liability is 0 and the pre-paid expense becomes real.

I understand the pre-paid expenses aren’t being entered into AP, but they are 
balanced by it until paid. They should not. They are NOT a liability. If I 
don’t pay them, I don’t owe them. The insurer has no legal claim against me. 
They have yet to provide me anything of value.

Acquiring a pre-paid asset is the result of an asset shift. AP or other 
Liabilities never enter the equation. That’s probably why every example of this 
transaction I can find never show anything but the actual pre-payment. Anything 
else is simply not contemplated. It’s possible, nothing at all is entered in 
paper books until the payment is made. But then with paper, your managing your 
payment calendars in a system separate from your books anyway. The issue is 
that GnuCash offers payment date managing with the Bills Due Reminder feature 
but it only works on posted bills. This is a bill that technically, you can’t 
post till it’s paid. (It’s not really a bill)

So the solution would be either treat it as a special case for posting, or 
change how the payment reminder works.

> 
> One other note is that this question of when to recognize an obligation
> to pay is a subtle one and really requires an accounting expert familiar
> with the type of business. A cash flow problem could be hidden by
> manipulating recognition dates.

I agree, but again, there is no obligation here at all. This is a pre-payment. 
This is not a bill for services rendered. It is a bill for services TO BE 
rendered. AP liabilities are known as ‘accrued expenses.’ They are recognized 
in the period incurred and paid later. This is the opposite. This is paid now, 
and recognized when incurred. But the Business Features don’t contemplate this 
at all, even though it is very common. (most ALL insurance is pre-paid, rent is 
another example though that is usually more important for businesses to track)

> 
> Dale
> 
> On 12/17/2017 01:46 PM, Adrien Monteleone wrote:
>> Dale,
>> 
>> Thank you, but in my case the first event to happen (for me) is the bill 
>> arriving.
>> 
>> Here is the sequence:
>> 
>> 1) Renewal bill is generated
>> 2) Renewal bill is mailed
>> 3) Renewal bill arrives in the mailbox
>> 4) Renewal bill is entered in GnuCash with date of #1 as ‘opening date'
>> 5) Renewal bill is ‘posted’ in GnuCash with current date as ‘posting date'
>> 6) Renewal bill is paid
>> 7) Renewal policy goes into effect
>> 

Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Dale Alspach]

Adrien,

It seems to me that what you want is not an accounting solution but a
software enhancement. I believe that you need to say exactly what you
want in a bugzilla RFE. For the issue you describe below what seems to
be required is a special version of scheduled transactions which will
post a bill. Your purpose seems to be to delay the  increase in assets
and liabilities until a time period near to the date that the bill will
be paid.

I believe that you wrote something incorrect here:
> Additionally, as noted in another reply, ‘bills’ for pre-paid expenses
>should never hit AP at all. They aren’t ever liabilities. They are (as
>yet unpaid) deferred expenses, not accrued expenses.

It is not the pre-paid expenses that are being entered into AP it is the
obligation to pay for them that is in AP and that is a liability. From
an accounting perspective this is exactly what is required. The not yet
existing asset pre-paid expense is being offset by a corresponding
liability so that the net on the balance sheet is 0. Once the bill is
paid the liability is 0 and the pre-paid expense becomes real.

One other note is that this question of when to recognize an obligation
to pay is a subtle one and really requires an accounting expert familiar
with the type of business. A cash flow problem could be hidden by
manipulating recognition dates.

Dale

On 12/17/2017 01:46 PM, Adrien Monteleone wrote:
> Dale,
> 
> Thank you, but in my case the first event to happen (for me) is the bill 
> arriving.
> 
> Here is the sequence:
> 
> 1) Renewal bill is generated
> 2) Renewal bill is mailed
> 3) Renewal bill arrives in the mailbox
> 4) Renewal bill is entered in GnuCash with date of #1 as ‘opening date'
> 5) Renewal bill is ‘posted’ in GnuCash with current date as ‘posting date'
> 6) Renewal bill is paid
> 7) Renewal policy goes into effect
> 
> There is usually a one-week gap between 1 & 3. 3,4 & 5 usually happen on the 
> same day. There is usually a 4-5 week gap between 3 & 7. The period boundary 
> usually happens between 5 & 6, but sometimes between 6 & 7.
> 
> The pre-paid expense should not appear until 6 is complete, but is currently 
> happening at 5. The date of 6 is unknown until it happens, so I can’t ‘fudge’ 
> and choose it as the posting date beforehand.
> 
> Additionally, as noted in another reply, ‘bills’ for pre-paid expenses should 
> never hit AP at all. They aren’t ever liabilities. They are (as yet unpaid) 
> deferred expenses, not accrued expenses. So I’ve opted to bypass the Business 
> Features entirely for this special case and forego the bill reminder as well 
> as any ability to see this activity in a vendor report.
> 
> 
> Regards,
> Adrien
> 
>> On Dec 16, 2017, at 4:36 PM, Dale Alspach  wrote:
>>
>> Adrien,
>>
>> I do not use the business features but it seems from what you have
>> written that something like the following may do what you want.
>>
>> Create a new liability account named Unbilled Payables (or whatever you
>> like).
>> Replace
>>> Dr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
>>> Cr. Liabilities:Accounts_Payable
>> by
>> Dr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
>> Cr. Liabilities:Unbilled Payables
>>
>> There is no change in the Balance Sheet net. The entry in Unbilled
>> Payables should be tagged so that an audit trail could be constructed.
>>
>> When the bill arrives, post the bill so that you effect a transfer
>> between the liabilities
>> Dr. Liabilities:Unbilled Payables
>> Cr. Liabilities:Accounts_Payable
>>
>> Again there is no change in the Balance Sheet net. At this point the
>> normal flow of the business features should generate your reminder and,
>> upon payment, zero the liability for the pre-paid insurance. The asset
>> becomes real.
>>
>> Dale
>>
>> On 12/15/2017 02:57 PM, Adrien Monteleone wrote:
>>> Yes, I can explain. And the example of insurance is just that. A pre-paid 
>>> expense IS an asset. (in accrual accounting)
>>>
>>> I pay in advance for auto insurance. The policy renews every 6 months. (for 
>>> me, this is in December and June)
>>>
>>> Paying in advance is a pre-paid expense. This is an asset. I have not yet 
>>> received ‘service’ from the insurance company.
>>>
>>> Here’s what the entry should be twice a year:
>>>
>>> Dr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
>>> Cr. Assets:Current_Assets:Cash
>>>
>>> As I receive ‘service’ each month, or ‘use’ the asset, I credit the 
>>> pre-paid expense account and debit the actual expense account for one-sixth 
>>> of the asset (as this is a 6-month policy):
>>>
>>> Dr. Expenses:Auto:Auto_Insurance
>>> Cr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
>>>
>>> The original question was trying to resolve the issue of posting the bill 
>>> from the insurer for each renewal and how that affects recognition of the 
>>> acquisition of the pre-paid expense asset.
>>>
>>> My current entry from the bill is:
>>>
>>> Dr. 

Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Adrien Monteleone]

Dale,

Thank you, but in my case the first event to happen (for me) is the bill 
arriving.

Here is the sequence:

1) Renewal bill is generated
2) Renewal bill is mailed
3) Renewal bill arrives in the mailbox
4) Renewal bill is entered in GnuCash with date of #1 as ‘opening date'
5) Renewal bill is ‘posted’ in GnuCash with current date as ‘posting date'
6) Renewal bill is paid
7) Renewal policy goes into effect

There is usually a one-week gap between 1 & 3. 3,4 & 5 usually happen on the 
same day. There is usually a 4-5 week gap between 3 & 7. The period boundary 
usually happens between 5 & 6, but sometimes between 6 & 7.

The pre-paid expense should not appear until 6 is complete, but is currently 
happening at 5. The date of 6 is unknown until it happens, so I can’t ‘fudge’ 
and choose it as the posting date beforehand.

Additionally, as noted in another reply, ‘bills’ for pre-paid expenses should 
never hit AP at all. They aren’t ever liabilities. They are (as yet unpaid) 
deferred expenses, not accrued expenses. So I’ve opted to bypass the Business 
Features entirely for this special case and forego the bill reminder as well as 
any ability to see this activity in a vendor report.


Regards,
Adrien

> On Dec 16, 2017, at 4:36 PM, Dale Alspach  wrote:
> 
> Adrien,
> 
> I do not use the business features but it seems from what you have
> written that something like the following may do what you want.
> 
> Create a new liability account named Unbilled Payables (or whatever you
> like).
> Replace
>> Dr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
>> Cr. Liabilities:Accounts_Payable
> by
> Dr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
> Cr. Liabilities:Unbilled Payables
> 
> There is no change in the Balance Sheet net. The entry in Unbilled
> Payables should be tagged so that an audit trail could be constructed.
> 
> When the bill arrives, post the bill so that you effect a transfer
> between the liabilities
> Dr. Liabilities:Unbilled Payables
> Cr. Liabilities:Accounts_Payable
> 
> Again there is no change in the Balance Sheet net. At this point the
> normal flow of the business features should generate your reminder and,
> upon payment, zero the liability for the pre-paid insurance. The asset
> becomes real.
> 
> Dale
> 
> On 12/15/2017 02:57 PM, Adrien Monteleone wrote:
>> Yes, I can explain. And the example of insurance is just that. A pre-paid 
>> expense IS an asset. (in accrual accounting)
>> 
>> I pay in advance for auto insurance. The policy renews every 6 months. (for 
>> me, this is in December and June)
>> 
>> Paying in advance is a pre-paid expense. This is an asset. I have not yet 
>> received ‘service’ from the insurance company.
>> 
>> Here’s what the entry should be twice a year:
>> 
>> Dr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
>> Cr. Assets:Current_Assets:Cash
>> 
>> As I receive ‘service’ each month, or ‘use’ the asset, I credit the pre-paid 
>> expense account and debit the actual expense account for one-sixth of the 
>> asset (as this is a 6-month policy):
>> 
>> Dr. Expenses:Auto:Auto_Insurance
>> Cr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
>> 
>> The original question was trying to resolve the issue of posting the bill 
>> from the insurer for each renewal and how that affects recognition of the 
>> acquisition of the pre-paid expense asset.
>> 
>> My current entry from the bill is:
>> 
>> Dr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
>> Cr. Liabilities:Accounts_Payable
>> 
>> and then when I pay it:
>> 
>> Dr. Liabilities:Accounts_Payable
>> Cr. Assets:Current_Assets:Cash
>> 
>> Technically, legally, I don’t have this asset until I actually pre-pay. The 
>> generation of a paper bill from the insurer is not an activity that either 
>> is the earning of income on their part, the incurring of an expense on mine, 
>> or even the assumption of a liability on the part of either of us. If I 
>> decline to pay the bill, the policy never goes into effect, I never receive 
>> anything of value and the insurer earns nothing, owes me nothing, and has no 
>> claim against me. (I don’t owe them anything)
>> 
>> Posting the bill on any date other than the actual payment date creates the 
>> problem of properly recognizing the asset. This is even more problematic if 
>> the bill for renewal is received and posted into GnuCash in the period prior 
>> to the renewal and payment date. (frequently the case - the bill usually 
>> arrives in mid November/May)
>> 
>> Note, I can’t find any guidance online on posting a ‘bill' for pre-paid 
>> insurance. ALL examples I find state to make the above entry—effective on 
>> the date of payment. I suspect this is because it is a shift in assets that 
>> cannot occur until it actually does. This is not a cash vs. accrual problem. 
>> The very use of the pre-paid expense account is a practice of accrual 
>> accounting and NOT cash basis accounting. (on a cash basis, the 

Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Adrien Monteleone]

Mike,

There are several dates at issue, but the main one I’m concerned with is ‘a’ or 
‘when work done’.

The problem is that this date infrequently occurs in the same period as either 
the real or effective date of the invoice/bill, or the date you open/post it in 
GnuCash.

Receiving, creating and posting a bill in December, for work done in November, 
should show up on reports in November as that was when the work was done. But 
it doesn’t. It shows up in December. One can enter the November dates on the 
line items in the bill, but that seems to be informational only and has no 
effect.

This is even more pronounced when a single bill has line items for work done in 
multiple periods. Only one period will show those expenses, and likely, it will 
be the period the bill was entered in, not any of the periods when the work was 
done.

(the same is equally true for income/invoices)

To fix this, I have to make correcting entries. I’m only having to make a 
correction because GnuCash didn’t use the data I put into it so that the 
expenses/income hit their proper periods of when the activity actually took 
place and instead used one of the artificial dates of document exchange/data 
entry.

Certainly, I can ‘post’ to any date I like, so for single-period 
bills/invoices, this can mitigated somewhat, but there is no easy solution for 
multi-period documents. With the case of pre-paid expenses, I really shouldn’t 
post until the pre-billing is paid. (loosing the Bills Due Reminder in the 
process)


Regards,
Adrien

> On Dec 15, 2017, at 4:20 PM, Mike or Penny Novack 
>  wrote:
> 
> I have zero experience with gnucash's invoicing system. Nevertheless I think 
> in this conversation dates may be confused. When I receive an invoice, say 
> for a visit to the doctor, there are SEVERAL dates involved.
> 
> a) The date the service was performed.
> b) The effective date of the invoice prepared by the doctor's billing service.
> c) The real time date when the invoice was prepared by the billing service
> 
> Which of these dates are we talking about? And from the doctor's point of 
> view, which of these dates (were we using gnucash) would be used for the date 
> of the transaction? << when affecting AR >>
> 
> When people are talking about periods being crossed "when work done" vs "when 
> invoice prepared" I wonder whether all are talking about the same date. And 
> if gnucash IS using the real time date when somebody gets around to entering 
> data, there may be a different sort of problem.
> 
> Michael D Novack
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Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Dale Alspach]

Adrien,

I do not use the business features but it seems from what you have
written that something like the following may do what you want.

Create a new liability account named Unbilled Payables (or whatever you
like).
Replace
> Dr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
> Cr. Liabilities:Accounts_Payable
by
Dr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
Cr. Liabilities:Unbilled Payables

There is no change in the Balance Sheet net. The entry in Unbilled
Payables should be tagged so that an audit trail could be constructed.

When the bill arrives, post the bill so that you effect a transfer
between the liabilities
Dr. Liabilities:Unbilled Payables
Cr. Liabilities:Accounts_Payable

Again there is no change in the Balance Sheet net. At this point the
normal flow of the business features should generate your reminder and,
upon payment, zero the liability for the pre-paid insurance. The asset
becomes real.

Dale

On 12/15/2017 02:57 PM, Adrien Monteleone wrote:
> Yes, I can explain. And the example of insurance is just that. A pre-paid 
> expense IS an asset. (in accrual accounting)
> 
> I pay in advance for auto insurance. The policy renews every 6 months. (for 
> me, this is in December and June)
> 
> Paying in advance is a pre-paid expense. This is an asset. I have not yet 
> received ‘service’ from the insurance company.
> 
> Here’s what the entry should be twice a year:
> 
> Dr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
> Cr. Assets:Current_Assets:Cash
> 
> As I receive ‘service’ each month, or ‘use’ the asset, I credit the pre-paid 
> expense account and debit the actual expense account for one-sixth of the 
> asset (as this is a 6-month policy):
> 
> Dr. Expenses:Auto:Auto_Insurance
> Cr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
> 
> The original question was trying to resolve the issue of posting the bill 
> from the insurer for each renewal and how that affects recognition of the 
> acquisition of the pre-paid expense asset.
> 
> My current entry from the bill is:
> 
> Dr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
> Cr. Liabilities:Accounts_Payable
> 
> and then when I pay it:
> 
> Dr. Liabilities:Accounts_Payable
> Cr. Assets:Current_Assets:Cash
> 
> Technically, legally, I don’t have this asset until I actually pre-pay. The 
> generation of a paper bill from the insurer is not an activity that either is 
> the earning of income on their part, the incurring of an expense on mine, or 
> even the assumption of a liability on the part of either of us. If I decline 
> to pay the bill, the policy never goes into effect, I never receive anything 
> of value and the insurer earns nothing, owes me nothing, and has no claim 
> against me. (I don’t owe them anything)
> 
> Posting the bill on any date other than the actual payment date creates the 
> problem of properly recognizing the asset. This is even more problematic if 
> the bill for renewal is received and posted into GnuCash in the period prior 
> to the renewal and payment date. (frequently the case - the bill usually 
> arrives in mid November/May)
> 
> Note, I can’t find any guidance online on posting a ‘bill' for pre-paid 
> insurance. ALL examples I find state to make the above entry—effective on the 
> date of payment. I suspect this is because it is a shift in assets that 
> cannot occur until it actually does. This is not a cash vs. accrual problem. 
> The very use of the pre-paid expense account is a practice of accrual 
> accounting and NOT cash basis accounting. (on a cash basis, the entire 
> premium would be expensed when paid)
> 
> Accrual vs. Cash doesn’t mean "document-dates vs. payment-dates." It means 
> "activity-dates vs. payment-dates.”
> 
> In fact, I see very little guidance with reference to the receipt of bills or 
> issuing of invoices. What I see is how to make entries for when the relevant 
> activity trigger takes place. (an expense is incurred or revenue is earned)
> 
> In the case of a pre-paid expense, (a deferred expense) the activity takes 
> place in later periods than the payment date. So the expense has to be 
> accrued as it is incurred. In the case of an accrued expense (the opposite) 
> the expense is recognized when incurred, and is booked as a liability until 
> paid.
> 
> It seems the business features only contemplated accrued expenses. (and 
> conversely on the invoice side, did not consider un-billed work)
> 
> So posting this bill shouldn’t even be a liability, it’s not an accrued 
> expense, it’s a deferred expense. It should never hit AP but I can’t see 
> anyway around that the way the system presently works.
> 
> A complication is that the Bills Due Reminder feature only works on posted 
> bills because that is when you enter the due date.(it can’t calculate 
> anything without it, unless you have fixed terms, but even with that, unless 
> you post, the reminder will not be triggered)
> 
> It would be nice to enter the bill when 

Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Mike or Penny Novack]

I have zero experience with gnucash's invoicing system. Nevertheless I 
think in this conversation dates may be confused. When I receive an 
invoice, say for a visit to the doctor, there are SEVERAL dates involved.


a) The date the service was performed.
b) The effective date of the invoice prepared by the doctor's billing 
service.

c) The real time date when the invoice was prepared by the billing service

Which of these dates are we talking about? And from the doctor's point 
of view, which of these dates (were we using gnucash) would be used for 
the date of the transaction? << when affecting AR >>


When people are talking about periods being crossed "when work done" vs 
"when invoice prepared" I wonder whether all are talking about the same 
date. And if gnucash IS using the real time date when somebody gets 
around to entering data, there may be a different sort of problem.


Michael D Novack
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Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Adrien Monteleone]

Thanks Dale,

That’s a very good down-to-earth point.

While I understand not getting lost in the fog of battle of "accuracy for 
accuracy’s sake” I also don’t like ending up in situations where I have to 
revisit or lookup historical information and have to remember “oh yeah, this or 
that figure isn’t right because of some bug, glitch, or workaround.”

Also, for budgeting considerations, I want to avoid unnecessary fluctuations 
for income and expenses particularly. Trying to match up my billable hours vs. 
my expenses can be a mess if everything doesn’t fall where it is supposed to. 
That’s a clear case of needing this for financial decisions. I need to 
continually keep an eye on whether or not my billing rates are sufficient to 
cover those expenses, or the expenses are exceeding what should be a reasonable 
level to earn a particular amount of revenue.

Certainly, if this were being done on paper and computers were not available, 
I’d have to make many a correcting entry. But we do have computers and I’m 
entering in all the relevant data. I just noticed that it isn’t all being used, 
the result of which requires correcting entries that wouldn’t otherwise need 
correcting. My view is that a correcting entry should only be needed because I 
didn’t have the relevant information the first time, not because of some 
limitation of the entry or recording system. Accrual entries are different and 
can’t be avoided, in fact, should be embraced and are necessary with accrual 
based accounting. But if at all possible, they should also be automatic if all 
the relevant info has already been provided.

So as I noted in another reply just now, my approach at least for the pre-paid 
expense issue will be to use my OS calendar reminders and post the transactions 
manually outside of the business features. This has a cost of not getting this 
‘due’ reminder in the same context as the others (in GnuCash) and the 
transactions not being visible on a vendor report, or even discoverable with 
the business features at all, but my accounts will not contain errors or 
require corrections. My balance sheets will not have inflated AP or Asset 
levels.

For the question of ‘job-based’ invoicing, I’ll have to employ the use of a 
‘un-billed work’ revenue account.

For the question of multi-period bills, I’m not sure yet. I guess I’ll have to 
make accrual entries on a case-by-case basis and see how it goes.

Regards,
Adrien

> On Dec 15, 2017, at 12:45 PM, Dale Alspach  wrote:
> 
> Adrien,
> I suggest that you may need to shift your point of view in order to resolve
> this.
> Disclaimer: I am not an accountant.,
> 
> My experience has been that you should not lose sight of the primary
> purpose of an accounting system: It is there to provide the information you
> need to make financial decisions. GAAP, satisfying taxing authorities,
> surviving audits, etc. are secondary.
> 
> Why do you want this prepaid expense to show in your reports? Is it a net
> worth issue? An underlying cash flow issue? Something else?
> 
> When is it important that it show in your balance sheet or other report?
> When is it important to show the obligation to pay the bill when it arrives?
> 
> The answers to these questions should help you determine what you really
> need. Then look for an implementation that satisfies these primary
> conditions and does not cause secondary problems.
> 
> Dale
> 
> On Dec 15, 2017 11:23 AM, "John Ralls"  wrote:
> 
>> 
>> 
>>> On Dec 15, 2017, at 7:51 AM, Derek Atkins  wrote:
>>> 
>>> Adrien,
>>> 
>>> Adrien Monteleone  writes:
>>> 
 Sorry, allow me to rephrase, when do I acquire the pre-paid expense
>> ASSET?
>>> 
>>> Can you please explain what you mean by a "pre-paid expense asset"?  Is
>>> it an Expense?  Or is it an Asset?
>>> 
>>> Could you give a concrete example of something that is a "pre-paid
>>> expense asset"?
>>> 
>>> Sorry for being dense, but I still don't grok what you're trying to do
>>> or how this is mapping into a real-world transaction.
>> 
>> Suppose you have an insurance policy that lets you either pay monthly or
>> for a whole year, with the latter getting a 10% discount, and that even if
>> you pay for the whole year you can cancel and get a pro-rata refund. The
>> annual pre-payment is booked as an asset called "pre-paid expense". Each
>> month you credit 1/12 of the annual payment to expenses:insurance. If 3
>> months in you cancel the policy, the refund creates a transfer transaction
>> back to the bank account.
>> 
>> Regards,
>> John Ralls
>> 
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Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Adrien Monteleone]

Yes, I can explain. And the example of insurance is just that. A pre-paid 
expense IS an asset. (in accrual accounting)

I pay in advance for auto insurance. The policy renews every 6 months. (for me, 
this is in December and June)

Paying in advance is a pre-paid expense. This is an asset. I have not yet 
received ‘service’ from the insurance company.

Here’s what the entry should be twice a year:

Dr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
Cr. Assets:Current_Assets:Cash

As I receive ‘service’ each month, or ‘use’ the asset, I credit the pre-paid 
expense account and debit the actual expense account for one-sixth of the asset 
(as this is a 6-month policy):

Dr. Expenses:Auto:Auto_Insurance
Cr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance

The original question was trying to resolve the issue of posting the bill from 
the insurer for each renewal and how that affects recognition of the 
acquisition of the pre-paid expense asset.

My current entry from the bill is:

Dr. Assets:Current_Assets:Pre-Paid_Expenses:Auto_Insurance
Cr. Liabilities:Accounts_Payable

and then when I pay it:

Dr. Liabilities:Accounts_Payable
Cr. Assets:Current_Assets:Cash

Technically, legally, I don’t have this asset until I actually pre-pay. The 
generation of a paper bill from the insurer is not an activity that either is 
the earning of income on their part, the incurring of an expense on mine, or 
even the assumption of a liability on the part of either of us. If I decline to 
pay the bill, the policy never goes into effect, I never receive anything of 
value and the insurer earns nothing, owes me nothing, and has no claim against 
me. (I don’t owe them anything)

Posting the bill on any date other than the actual payment date creates the 
problem of properly recognizing the asset. This is even more problematic if the 
bill for renewal is received and posted into GnuCash in the period prior to the 
renewal and payment date. (frequently the case - the bill usually arrives in 
mid November/May)

Note, I can’t find any guidance online on posting a ‘bill' for pre-paid 
insurance. ALL examples I find state to make the above entry—effective on the 
date of payment. I suspect this is because it is a shift in assets that cannot 
occur until it actually does. This is not a cash vs. accrual problem. The very 
use of the pre-paid expense account is a practice of accrual accounting and NOT 
cash basis accounting. (on a cash basis, the entire premium would be expensed 
when paid)

Accrual vs. Cash doesn’t mean "document-dates vs. payment-dates." It means 
"activity-dates vs. payment-dates.”

In fact, I see very little guidance with reference to the receipt of bills or 
issuing of invoices. What I see is how to make entries for when the relevant 
activity trigger takes place. (an expense is incurred or revenue is earned)

In the case of a pre-paid expense, (a deferred expense) the activity takes 
place in later periods than the payment date. So the expense has to be accrued 
as it is incurred. In the case of an accrued expense (the opposite) the expense 
is recognized when incurred, and is booked as a liability until paid.

It seems the business features only contemplated accrued expenses. (and 
conversely on the invoice side, did not consider un-billed work)

So posting this bill shouldn’t even be a liability, it’s not an accrued 
expense, it’s a deferred expense. It should never hit AP but I can’t see anyway 
around that the way the system presently works.

A complication is that the Bills Due Reminder feature only works on posted 
bills because that is when you enter the due date.(it can’t calculate anything 
without it, unless you have fixed terms, but even with that, unless you post, 
the reminder will not be triggered)

It would be nice to enter the bill when received in GnuCash and have it show up 
on the Bills Due Reminder, but that seems impossible in this case. I can 
certainly enter the bill when received, but I can’t post it till I pay it or 
else my assets will shift too soon.

I suppose I could bypass the business features all together, but then I don’t 
get the benefit of a bill reminder, or an easy to follow history with that 
vendor. (manual transactions won’t show up on the vendor report)

I’ve decided on this approach for now:

Set a reminder in my OS calendar to enter and post the bill as a manual 
transaction when I actually pay it.

This means I can’t see this transaction on a vendor report and I can’t see my 
‘due dates’ all in one place - GnuCash.

However, my AP won’t have an erroneous entry and my assets won’t be inflated in 
November and May of each year.

Regards,
Adrien

> On Dec 15, 2017, at 9:51 AM, Derek Atkins  wrote:
> 
> Adrien,
> 
> Adrien Monteleone  writes:
> 
>> Sorry, allow me to rephrase, when do I acquire the pre-paid expense ASSET?
> 
> Can you please explain what you mean by a "pre-paid expense asset"?  Is
> it an Expense?  Or 

Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Adrien Monteleone]

> On Dec 13, 2017, at 9:16 AM, Derek Atkins  wrote:
> 
> Adrien Monteleone  writes:
> 
>> Thank you Derek,
>> 
>> The inefficiency I referenced was in respect to having to make many
>> accrual entries at the end and beginning of each month simply to shift
>> the recognition of parts of invoices and bills to their proper periods
>> that otherwise would not have to be done if the posting process
>> allowed for using the line-item dates. As it stands, using a single
>> posting date for a bill/invoice that either crosses periods or
>> contains multiple periods results in incorrect recognition. This is
>> what I mean by a carryover limitation of paper ledgers. That practice
>> was necessary with paper. It is not with computers. (at least I don’t
>> see that it is, of course, if you *want* to make all those entries
>> manually, by all means… )
> 
> The design is such that a single invoice is not supposed to cross period
> boundaries.  If you find you are invoicing your customers across
> periods, that implies (to me) that you don't invoice often enough (or
> your periods are way too short).  Making new invoices (at least one per
> period) is rather cheap, so I recommend you do that ;)

This happens for me more with bills than invoices, but with invoicing customers 
it means not being able to invoice by ‘job’ and instead having to invoice by 
period. (otherwise, using a ‘non-billed work’ account to match against income, 
thus more unnecessary correcting entries)
> 
> It's certainly true that the invoice posting and payments could occur in
> different boundaries -- which revert back to the cash v accrual
> accounting question.  In accrual accounting that disparity is fine.

Yes, that disparity is fine and certainly with single-period expenses, there is 
no issue. The issue is with multi-period expenses on one bill. The limitations 
of ‘paper’ require correcting entries. But this seems unnecessary to me with 
computers. That limitation doesn’t seem to be in keeping with any accounting 
principle but rather appears artificial based on trying to mimic paper entry.

> 
> Oh, and in terms of a vendor bill, in my mind the period is when I
> receive the bill.  If someone did work for me in December and doesn't
> bill me until February, I'm booking it in February.

That would violate the recognition principle. You’re recognizing expenses in a 
period other than when they were actually incurred. If you invoice in February 
for work done in December and don’t post the income till February, you are 
recognizing that in the wrong period as well. Expenses and income will never be 
matched - violating the matching principle.

> 
>> I’m not asking for the business features to work on a cash basis. I’m
>> wanting them to not cause me to have to make multiple correcting
>> entries for proper expense and revenue recognition. I’m not concerned
>> with recognizing bills/invoices when the money changes hands. I’m
>> concerned with recognizing them when the expense is incurred or the
>> work performed. This works perfectly if everything is tidy in one
>> period. It’s a mess if the ‘document' is not.
> 
> If it's your own invoicing, then just invoice more often.

Generating paper isn’t a determinate of when income is earned. When I invoice 
it should be irrelevant to that question. Though I suppose for now I’ll have to 
take the above outlined approach of a non-billed work intermediary account.
> 
> If it's a vendor bill, then treat it as a single transaction regardless
> of when they did the work... Or enter it as multiple related vendor
> bills.
And therein lies the unnecessary extra entries. Either I create multiple bills 
when there is really only one, or I create one and have to make accrual entries 
moving amounts between periods - all when the data is known and already entered 
into GnuCash, just not being used.

> 
>> Perhaps I’m misunderstanding something that you or someone else could
>> help clear up for me. Let’s take a simpler example of a single period
>> bill:
>> 
>> I receive local telephone service in October. The phone company
>> generates a bill for that October service on November 7th. It arrives
>> (postmarked) November 12th. I enter it in GnuCash the same day. The
>> due date is November 27th.
>> 
>> What should my posting date be?
>> 
>> 1) November 7th?
>> 2) November 12th?
>> 2) November 27th?
>> 3) some date in October? (31st perhaps)
>> 4) something else?
> 
> Nov 12.  That's when you received the bill and posted it to your account.
But then the expense gets recognized in November. This is not when I incurred 
it. (which was October)

> 
>> What should the ‘opening date’ be?
>> 
>> 1) November 7th?
>> 2) November 12th?
>> 3) something else?
>> 4) If I enter the bill on November 13th, is *that* the opening date?
>> 
>> I guess I’m thinking the ‘opening date’ must preceded the posting
>> date, but I suppose that doesn’t matter. (maybe that’s me carrying
>> over 

Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Dale Alspach]

Adrien,
I suggest that you may need to shift your point of view in order to resolve
this.
Disclaimer: I am not an accountant.,

My experience has been that you should not lose sight of the primary
purpose of an accounting system: It is there to provide the information you
need to make financial decisions. GAAP, satisfying taxing authorities,
surviving audits, etc. are secondary.

Why do you want this prepaid expense to show in your reports? Is it a net
worth issue? An underlying cash flow issue? Something else?

When is it important that it show in your balance sheet or other report?
When is it important to show the obligation to pay the bill when it arrives?

The answers to these questions should help you determine what you really
need. Then look for an implementation that satisfies these primary
conditions and does not cause secondary problems.

Dale

On Dec 15, 2017 11:23 AM, "John Ralls"  wrote:

>
>
> > On Dec 15, 2017, at 7:51 AM, Derek Atkins  wrote:
> >
> > Adrien,
> >
> > Adrien Monteleone  writes:
> >
> >> Sorry, allow me to rephrase, when do I acquire the pre-paid expense
> ASSET?
> >
> > Can you please explain what you mean by a "pre-paid expense asset"?  Is
> > it an Expense?  Or is it an Asset?
> >
> > Could you give a concrete example of something that is a "pre-paid
> > expense asset"?
> >
> > Sorry for being dense, but I still don't grok what you're trying to do
> > or how this is mapping into a real-world transaction.
>
> Suppose you have an insurance policy that lets you either pay monthly or
> for a whole year, with the latter getting a 10% discount, and that even if
> you pay for the whole year you can cancel and get a pro-rata refund. The
> annual pre-payment is booked as an asset called "pre-paid expense". Each
> month you credit 1/12 of the annual payment to expenses:insurance. If 3
> months in you cancel the policy, the refund creates a transfer transaction
> back to the bank account.
>
> Regards,
> John Ralls
>
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Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[John Ralls]

> On Dec 15, 2017, at 7:51 AM, Derek Atkins  wrote:
> 
> Adrien,
> 
> Adrien Monteleone  writes:
> 
>> Sorry, allow me to rephrase, when do I acquire the pre-paid expense ASSET?
> 
> Can you please explain what you mean by a "pre-paid expense asset"?  Is
> it an Expense?  Or is it an Asset?
> 
> Could you give a concrete example of something that is a "pre-paid
> expense asset"?
> 
> Sorry for being dense, but I still don't grok what you're trying to do
> or how this is mapping into a real-world transaction.

Suppose you have an insurance policy that lets you either pay monthly or for a 
whole year, with the latter getting a 10% discount, and that even if you pay 
for the whole year you can cancel and get a pro-rata refund. The annual 
pre-payment is booked as an asset called "pre-paid expense". Each month you 
credit 1/12 of the annual payment to expenses:insurance. If 3 months in you 
cancel the policy, the refund creates a transfer transaction back to the bank 
account.

Regards,
John Ralls

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Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Derek Atkins]

Adrien,

Adrien Monteleone  writes:

> Sorry, allow me to rephrase, when do I acquire the pre-paid expense ASSET?

Can you please explain what you mean by a "pre-paid expense asset"?  Is
it an Expense?  Or is it an Asset?

Could you give a concrete example of something that is a "pre-paid
expense asset"?

Sorry for being dense, but I still don't grok what you're trying to do
or how this is mapping into a real-world transaction.

> Please remember to CC this list on all your replies.
> You can do this by using Reply-To-List or Reply-All.

-derek

-- 
   Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
   Member, MIT Student Information Processing Board  (SIPB)
   URL: http://web.mit.edu/warlord/PP-ASEL-IA N1NWH
   warl...@mit.eduPGP key available
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Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Adrien Monteleone]

> On Dec 13, 2017, at 9:24 AM, Derek Atkins  wrote:
> 
> Adrien Monteleone  writes:
> 
>> I don’t think I’m mixing cash-accrual, but just to clear up any
>> confusion, let’s forget when I actually pay the pre-paid expense. When
>> do I incur it? When the bill is generated by the insurer? When I
>> receive the bill? When I enter it in GnuCash? When it is due? (the
>> effective date of the policy) In short, what should my posting date
>> be? (#2 below)
> 
> Well, when you incur the "expense" differs based on cash vs accrual
> accounting.  IMHO (IANAA) you incur the expense (under accrual) some
> time between when the bull is generated and when you receive it.  Under
> cash it's of course when you pay it.

Sorry, allow me to rephrase, when do I acquire the pre-paid expense ASSET?

I can’t acquire it until I pay the bill. It’s impossible otherwise.

Until that bill is paid, I have no claim against the insurer and the insurer 
certainly has yet to deliver their service. (this is pre-paid)

They have no claim against me until they deliver that service.

A pre-paid asset expense only comes into being when an actual pre-payment is 
made, not a moment before. I doubt any court would award me any claim to such 
an asset just because the insurer sent me a bill.

Certainly, the insurer doesn’t owe me anything. I have nothing on deposit with 
them yet. They won’t show any liability to me on their books. (and they 
certainly won’t have booked any income or revenue)


> 
> [snip]
>> I’ll wait for now. I see this as a separate issue. I'm not asking a
>> question of cash vs. accrual for post-billed expenses, but single
>> vs. multiple posting dates. Just under an accrual method, a
>> multi-period bill/invoice is not recognized properly in one step. It
>> still (like paper) requires correcting entries to accrue amounts back
>> and forth across period boundaries. I see that the needed info is
>> already present in the bill/invoice, just not being used.
> 
> As I said in my last reply, there is a 1:1 mapping of Invoice <->
> Transaction, so you cannot have "multiple posting dates".  If that's an
> issue, then enter multiple invoices.
> 
> You CAN have a single invoice (with a single date) that collects
> multiple days or work.  For example, if I get my car serviced the work
> done could take a week -- the bill I receive from them has a single
> date, but the line-items each have individual dates.  It doesn't matter
> if the car was in the shop across an accounting period boundary -- it's
> a single bill and gets entered/dated when you receive it.
> 
> Maybe you need to supply a use case where you actually receive a single
> bill for something that actually needs to be split across multiple
> periods.  I still don't see that here. 

The telephone bill was one such example. It DOES matter when I make the calls 
because that is when service was delivered, when I incurred the expense. I 
don’t incur the expense on the date the paper bill is generated and the phone 
company doesn’t earn the revenue on that date either. They earned it when they 
connected the phone call. Recording this on the date of the bill or the date I 
received the bill, or the date I enter it in to my accounting system, or it’s 
due date all would violate proper period recognition of the expense.
> 
>> Now, maybe making this change would help both use cases, but the cash
>> case still depends on payment dates, and I’m not concerned with
>> payment dates at all here, just single vs. multi-period postings.
>> 
>> My apologies if addressing the pre-billed/pre-paid recognition
>> question at the same time as the single/multi-period posting question
>> confused things. I considered separating the posts and probably should
>> have. They are two separate issues.
> 
> I think they are related issues.  There's a question of when the value
> hits your A/R or A/P accounts, when it hits your Bank account, and when
> it hits your Income/Expense accounts. Of course there's the added
> question of what do you do with the value if you necessarily need to
> split the dates of when it hits A/R;A/P vs when it hits your
> Bank;Income/Expense.
> 
>> Thanks for your insights,
>> Adrien
> 
>> Please remember to CC this list on all your replies.
>> You can do this by using Reply-To-List or Reply-All.
> 
> -derek
> 
> -- 
>   Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
>   Member, MIT Student Information Processing Board  (SIPB)
>   URL: http://web.mit.edu/warlord/PP-ASEL-IA N1NWH
>   warl...@mit.eduPGP key available

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Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Adrien Monteleone]

Thanks David,

I’m already following these procedures as you outline them in 1-4.

My hangup is in #2, I’m posting the pre-paid bill and thus increasing 
Assets:CurrentAssets:Pre-PaidExpenses:AutoInsurance before I actually acquire 
the pre-paid asset. Until I make the payment I really don’t have that asset. 
The insurer doesn’t have any of my money. No court would award me any value on 
an unpaid bill. I doubt any insurer could book the liability on their end until 
they had my cash in their hands. (treated as a customer-deposit most likely)

I don’t see any way around this other than two options:

1) just wait to post until I make the payment.
2) create an otherwise pointless ‘holding’ account to post to instead of the 
pre-paid asset, then make a transfer from that account to the pre-paid asset 
when I really pay the bill. However, I can’t make heads or tails of where that 
holding account should be classified. I don’t have new assets just for 
receiving a bill. I don’t yet have any expense (to be done periodically over 
time) and I don’t have any liability because I haven’t received anything of 
value not paid for.(a company doesn’t earn revenue and you don’t incur 
liability to them just because they generated a piece of paper and mailed it to 
you. They have to actually deliver a good or service to you.)

I get the difference between accrual and cash basis, but this seems to be one 
case that is impossible to be accrual. It seems it always has to be cash basis.

I think since this only happens twice a year, I’ll just handle that one case 
with #1. I’ll enter the bill in GnuCash, forego the Bills Due Reminder, and 
just post and pay together on the same day.


Regards,
Adrien

> On Dec 14, 2017, at 1:12 AM, DaveC49  wrote:
> 
> Hi Adrien,
> 
> I am assuming here you mean when you are pre-billed by a supplier of a good
> or service. What follows is not necessarily restricted to insurance or even
> to prepayment but just uses these to illustrate the principle. If you mean
> that you are pre-billing a client, my apologies and please ignore.
> 
> I think the issue is not that there is a single event associated with things
> like prepayments but that there are multiple events. If one wishes to meet
> the full requirement to provide an accurate reflection of events in your
> accounts, for example to handle the issue of pre-billing of insurance for a
> future accounting period you have (at least) the following events which you
> record in your accounts as they occur unless of course
> regulations/legislation specifies otherwise.
> 
> 1. Insurer issues an invoice to you.  You have no knowledge of this until
> you receive it. This doesn't appear in your accounts.
> 
> 2. You receive an invoice from the insurer. It will specify a due date and
> terms and conditions, possibly a discount if paid in advance or interest if
> not paid by the due date and an amount to be  paid at a future date.  You
> raise a Bill in your accounts. I would choose the date you receive the
> invoice from the insurer 
> as the post date as this is when you become aware of the obligation to make
> that future payment and receive in return insurance cover for an agreed
> period, which may or may not be from the due date even though it generally
> is.  You would record the bill with a debit to an Asset:PrepaidInsurance
> account and a corresponding credit to Liability:A/P created by posting the
> bill. You could equally use the date on the invoice issued by the
> insurer/supplier, unless there is a significant difference between the date
> it was issued and the date you received it, but the latter is really the
> most significant event associated with the bill for your accounts. (Dates on
> line items in the invoice from a general supplier to you may be relevant
> however if you are matching a particular expense to specific items of
> revenue of course).
> 
> 3. You pay the Bill at or before the due date. (Ignore the discount
> possibility.) Again I would use the date I raised a cheque, authorised a
> transfer from my account, handed over cash etc. depending on how I paid the
> bill. In the case of a cheque or where there may be a significant delay in
> an electronic funds transfer after you have authorised it, you may use a
> temporary clearing account to record that you have made the payment and then
> clear that account when the funds are actually transferred (cheque cleared
> or electronic transfer from your account recorded if this level of detail is
> of importance to you). In the simplest form this would be a credit to your
> Asset:Bank account and a debit to the Liability:A/P at the date you made the
> payment.
> 
> 4. The final step would be to expense the prepayment at periodic times
> during the period of the insurance with a credit to Asset:PrepaidInsurance 
> and a debit to Expense:Insurance. 
> 
> By capitalising the insurance prepayment, it can be carried through over
> into a future accounting 

Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[DaveC49]

Hi Adrien,

I am assuming here you mean when you are pre-billed by a supplier of a good
or service. What follows is not necessarily restricted to insurance or even
to prepayment but just uses these to illustrate the principle. If you mean
that you are pre-billing a client, my apologies and please ignore.

I think the issue is not that there is a single event associated with things
like prepayments but that there are multiple events. If one wishes to meet
the full requirement to provide an accurate reflection of events in your
accounts, for example to handle the issue of pre-billing of insurance for a
future accounting period you have (at least) the following events which you
record in your accounts as they occur unless of course
regulations/legislation specifies otherwise.

1. Insurer issues an invoice to you.  You have no knowledge of this until
you receive it. This doesn't appear in your accounts.

2. You receive an invoice from the insurer. It will specify a due date and
terms and conditions, possibly a discount if paid in advance or interest if
not paid by the due date and an amount to be  paid at a future date.  You
raise a Bill in your accounts. I would choose the date you receive the
invoice from the insurer 
as the post date as this is when you become aware of the obligation to make
that future payment and receive in return insurance cover for an agreed
period, which may or may not be from the due date even though it generally
is.  You would record the bill with a debit to an Asset:PrepaidInsurance
account and a corresponding credit to Liability:A/P created by posting the
bill. You could equally use the date on the invoice issued by the
insurer/supplier, unless there is a significant difference between the date
it was issued and the date you received it, but the latter is really the
most significant event associated with the bill for your accounts. (Dates on
line items in the invoice from a general supplier to you may be relevant
however if you are matching a particular expense to specific items of
revenue of course).

3. You pay the Bill at or before the due date. (Ignore the discount
possibility.) Again I would use the date I raised a cheque, authorised a
transfer from my account, handed over cash etc. depending on how I paid the
bill. In the case of a cheque or where there may be a significant delay in
an electronic funds transfer after you have authorised it, you may use a
temporary clearing account to record that you have made the payment and then
clear that account when the funds are actually transferred (cheque cleared
or electronic transfer from your account recorded if this level of detail is
of importance to you). In the simplest form this would be a credit to your
Asset:Bank account and a debit to the Liability:A/P at the date you made the
payment.

4. The final step would be to expense the prepayment at periodic times
during the period of the insurance with a credit to Asset:PrepaidInsurance 
and a debit to Expense:Insurance. 

By capitalising the insurance prepayment, it can be carried through over
into a future accounting period and expensed in that period.

I am not sure what you meant by "My issue isn’t the idea of a pre-paid
asset, my issue is that it is increasing when I post the bill, not when I
pay it."  I guess you mean the A/P balance by it or do you mean the Expense
account (or an Asset account if it is prepaid). If it is the A/P balance,
then that is the correct expected behavior as Derek has pointed out. If the
posting date is not relevant to matching particular income then capitalising
it to an asset account then expensing it at the relevant date wil do the
trick. Next issue is whether the asset account should be under current
assets, if it is to be expensed within the current period or in non-current
assets where it is to be expensed in a succeeding period.



-
David Cousens
--
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Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Derek Atkins]

Adrien Monteleone  writes:

> I don’t think I’m mixing cash-accrual, but just to clear up any
> confusion, let’s forget when I actually pay the pre-paid expense. When
> do I incur it? When the bill is generated by the insurer? When I
> receive the bill? When I enter it in GnuCash? When it is due? (the
> effective date of the policy) In short, what should my posting date
> be? (#2 below)

Well, when you incur the "expense" differs based on cash vs accrual
accounting.  IMHO (IANAA) you incur the expense (under accrual) some
time between when the bull is generated and when you receive it.  Under
cash it's of course when you pay it.

[snip]
> I’ll wait for now. I see this as a separate issue. I'm not asking a
> question of cash vs. accrual for post-billed expenses, but single
> vs. multiple posting dates. Just under an accrual method, a
> multi-period bill/invoice is not recognized properly in one step. It
> still (like paper) requires correcting entries to accrue amounts back
> and forth across period boundaries. I see that the needed info is
> already present in the bill/invoice, just not being used.

As I said in my last reply, there is a 1:1 mapping of Invoice <->
Transaction, so you cannot have "multiple posting dates".  If that's an
issue, then enter multiple invoices.

You CAN have a single invoice (with a single date) that collects
multiple days or work.  For example, if I get my car serviced the work
done could take a week -- the bill I receive from them has a single
date, but the line-items each have individual dates.  It doesn't matter
if the car was in the shop across an accounting period boundary -- it's
a single bill and gets entered/dated when you receive it.

Maybe you need to supply a use case where you actually receive a single
bill for something that actually needs to be split across multiple
periods.  I still don't see that here. 

> Now, maybe making this change would help both use cases, but the cash
> case still depends on payment dates, and I’m not concerned with
> payment dates at all here, just single vs. multi-period postings.
>
> My apologies if addressing the pre-billed/pre-paid recognition
> question at the same time as the single/multi-period posting question
> confused things. I considered separating the posts and probably should
> have. They are two separate issues.

I think they are related issues.  There's a question of when the value
hits your A/R or A/P accounts, when it hits your Bank account, and when
it hits your Income/Expense accounts. Of course there's the added
question of what do you do with the value if you necessarily need to
split the dates of when it hits A/R;A/P vs when it hits your
Bank;Income/Expense.

> Thanks for your insights,
> Adrien

> Please remember to CC this list on all your replies.
> You can do this by using Reply-To-List or Reply-All.

-derek

-- 
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   Member, MIT Student Information Processing Board  (SIPB)
   URL: http://web.mit.edu/warlord/PP-ASEL-IA N1NWH
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Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Derek Atkins]

Adrien Monteleone  writes:

> Thank you Derek,
>
> The inefficiency I referenced was in respect to having to make many
> accrual entries at the end and beginning of each month simply to shift
> the recognition of parts of invoices and bills to their proper periods
> that otherwise would not have to be done if the posting process
> allowed for using the line-item dates. As it stands, using a single
> posting date for a bill/invoice that either crosses periods or
> contains multiple periods results in incorrect recognition. This is
> what I mean by a carryover limitation of paper ledgers. That practice
> was necessary with paper. It is not with computers. (at least I don’t
> see that it is, of course, if you *want* to make all those entries
> manually, by all means… )

The design is such that a single invoice is not supposed to cross period
boundaries.  If you find you are invoicing your customers across
periods, that implies (to me) that you don't invoice often enough (or
your periods are way too short).  Making new invoices (at least one per
period) is rather cheap, so I recommend you do that ;)

It's certainly true that the invoice posting and payments could occur in
different boundaries -- which revert back to the cash v accrual
accounting question.  In accrual accounting that disparity is fine.

Oh, and in terms of a vendor bill, in my mind the period is when I
receive the bill.  If someone did work for me in December and doesn't
bill me until February, I'm booking it in February.

> I’m not asking for the business features to work on a cash basis. I’m
> wanting them to not cause me to have to make multiple correcting
> entries for proper expense and revenue recognition. I’m not concerned
> with recognizing bills/invoices when the money changes hands. I’m
> concerned with recognizing them when the expense is incurred or the
> work performed. This works perfectly if everything is tidy in one
> period. It’s a mess if the ‘document' is not.

If it's your own invoicing, then just invoice more often.

If it's a vendor bill, then treat it as a single transaction regardless
of when they did the work... Or enter it as multiple related vendor
bills.

> Perhaps I’m misunderstanding something that you or someone else could
> help clear up for me. Let’s take a simpler example of a single period
> bill:
>
> I receive local telephone service in October. The phone company
> generates a bill for that October service on November 7th. It arrives
> (postmarked) November 12th. I enter it in GnuCash the same day. The
> due date is November 27th.
>
> What should my posting date be?
>
> 1) November 7th?
> 2) November 12th?
> 2) November 27th?
> 3) some date in October? (31st perhaps)
> 4) something else?

Nov 12.  That's when you received the bill and posted it to your account.

> What should the ‘opening date’ be?
>
> 1) November 7th?
> 2) November 12th?
> 3) something else?
> 4) If I enter the bill on November 13th, is *that* the opening date?
>
> I guess I’m thinking the ‘opening date’ must preceded the posting
> date, but I suppose that doesn’t matter. (maybe that’s me carrying
> over from paper here)

The opening date would be Nov 7.  That's the date the bill is dated.

> Now, let’s complicate things:
>
> I also receive long-distance telephone service from the same phone
> company and they bill me on one bill for everything. That November 7th
> bill is for long-distance calls made in September AND October. All
> other dates remain the same.
>
> What should my posting date be?
>
> 1) same as above?
> 2) same as above and then I have to accrue September’s charges back
> and forth from the above date?
> 3) some date in September and then accrue October’s charges back and forth?
> 4) something else?

Same as above.  It doesn't matter that you made the calls in September,
it matters that you're being billed in November.

> What should the ‘opening date be?
>
> 1) same as above?
> 2) some date in September?
> 3) something else?

Same as above.

> (Thankfully, I don’t have to deal with customer charge-backs using the
> business features in this scenario as not only is there a limitation
> of one customer & job per bill, there is the added limitation of one
> period. But it would be nice to see how much expense a particular
> customer is ‘costing' me.)
>
> Derek, thank you very much for your time and effort and thank you for
> writing the business features in the first place! Long ago I was sold
> on GnuCash over other options precisely because I found this mailing
> list and found that developers are active on it. I can’t express
> enough how valuable that is and how much it is appreciated. I shudder
> to think of the cold, faceless brick wall I would encounter (and have)
> with other software. GnuCash and its developer team deserve FOSS
> awards for sure.
>
> Please don’t take anything I say here as any form of criticism or
> complaint. I’m merely trying to understand how this is supposed to
> 

Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Adrien Monteleone]

> On Dec 12, 2017, at 10:50 AM, Derek Atkins  wrote:
> 
> Adrien Monteleone  writes:
> 
>> I’ve already got the pre-paying and expensing part straight. My issue
>> isn’t the idea of a pre-paid asset, my issue is that it is increasing
>> when I post the bill, not when I pay it. I understand the difference
>> between recording events vs. actual money exchanges but this is a
>> question of ‘when is the event?’
> 
> You're asking yourself the difference of cash vs accrual.  There is a
> huge process about "revenue recognition" in terms of how/when you are
> supposed to recognize it, and different companies are required to use
> different methods.

I don’t think I’m mixing cash-accrual, but just to clear up any confusion, 
let’s forget when I actually pay the pre-paid expense. When do I incur it? When 
the bill is generated by the insurer? When I receive the bill? When I enter it 
in GnuCash? When it is due? (the effective date of the policy) In short, what 
should my posting date be? (#2 below)


> 
> When I wrote the business features I chose one that made sense to me at
> the time.  Honestly, I wrote it for me, for my own uses in my consulting
> company, but tried to make it general enough for others to use.
> 
> Patches are always welcome, but keep in mind that there are still a lot
> of invariants that would make different model "hard" to implement.  See
> https://bugzilla.gnome.org/show_bug.cgi?id=95700 for 15 years of
> discussion in this topic.
> 
>> 1. When the insurer generates the bill?
>> 2. The date I arbitrarily ‘post’ the bill in GnuCash.(usually the day
>> I enter it, or the ‘effective date’ of service.)
>> 3. The due date of the bill and thus effective date of the beginning
>> of the policy?
>> 4. The date I actually pay the bill and decrease my cash asset?
> 
> This is why there are two dates (well, three dates), an invoice/bill
> date, a post date, and then a due date.  The invoice date is #1, your
> post date is #2, the due date is #3.  And of course #4 is when you
> process the payment.
> 
> As for the date that the transaction should touch the Income/Expense
> account, that varies completely based on how you recognize revenue (and
> expenses).  The business features, as written, use #2 as that date.
> 
>> The problem is that 1&2 are happening in November and May of each
>> year, while 3&4 are usually happening in December & June
>> respectively. Thus, balance sheets for November and May are overstated
>> in the pre-paid asset category.
>> 
>> On the invoicing side of the question, I didn’t think of an
>> ‘unbilled-work’ account. Thanks. I’ll use that.
>> 
>> As for normal post-billed expenses crossing multiple periods I guess
>> the only option is correcting entries, but that sure seems like a
>> limitation of paper that computers should be able to handle more
>> easily. The data is already being entered. It just isn’t being used by
>> the software. I’ll file an enhancement request.
> 
> Don't bother -- It'll be closed as a duplicate.  Use the existing one.

I’ll wait for now. I see this as a separate issue. I'm not asking a question of 
cash vs. accrual for post-billed expenses, but single vs. multiple posting 
dates. Just under an accrual method, a multi-period bill/invoice is not 
recognized properly in one step. It still (like paper) requires correcting 
entries to accrue amounts back and forth across period boundaries. I see that 
the needed info is already present in the bill/invoice, just not being used.

Now, maybe making this change would help both use cases, but the cash case 
still depends on payment dates, and I’m not concerned with payment dates at all 
here, just single vs. multi-period postings.

My apologies if addressing the pre-billed/pre-paid recognition question at the 
same time as the single/multi-period posting question confused things. I 
considered separating the posts and probably should have. They are two separate 
issues.

Thanks for your insights,
Adrien

> 
>> Regards,
>> Adrien
> 
>> Please remember to CC this list on all your replies.
>> You can do this by using Reply-To-List or Reply-All.
> 
> -derek
> 
> -- 
>   Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
>   Member, MIT Student Information Processing Board  (SIPB)
>   URL: http://web.mit.edu/warlord/PP-ASEL-IA N1NWH
>   warl...@mit.eduPGP key available

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Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Adrien Monteleone]

Thank you Derek,

The inefficiency I referenced was in respect to having to make many accrual 
entries at the end and beginning of each month simply to shift the recognition 
of parts of invoices and bills to their proper periods that otherwise would not 
have to be done if the posting process allowed for using the line-item dates. 
As it stands, using a single posting date for a bill/invoice that either 
crosses periods or contains multiple periods results in incorrect recognition. 
This is what I mean by a carryover limitation of paper ledgers. That practice 
was necessary with paper. It is not with computers. (at least I don’t see that 
it is, of course, if you *want* to make all those entries manually, by all 
means… )

I’m not asking for the business features to work on a cash basis. I’m wanting 
them to not cause me to have to make multiple correcting entries for proper 
expense and revenue recognition. I’m not concerned with recognizing 
bills/invoices when the money changes hands. I’m concerned with recognizing 
them when the expense is incurred or the work performed. This works perfectly 
if everything is tidy in one period. It’s a mess if the ‘document' is not.

Perhaps I’m misunderstanding something that you or someone else could help 
clear up for me. Let’s take a simpler example of a single period bill:

I receive local telephone service in October. The phone company generates a 
bill for that October service on November 7th. It arrives (postmarked) November 
12th. I enter it in GnuCash the same day. The due date is November 27th.

What should my posting date be?

1) November 7th?
2) November 12th?
2) November 27th?
3) some date in October? (31st perhaps)
4) something else?

What should the ‘opening date’ be?

1) November 7th?
2) November 12th?
3) something else?
4) If I enter the bill on November 13th, is *that* the opening date?

I guess I’m thinking the ‘opening date’ must preceded the posting date, but I 
suppose that doesn’t matter. (maybe that’s me carrying over from paper here)

Now, let’s complicate things:

I also receive long-distance telephone service from the same phone company and 
they bill me on one bill for everything. That November 7th bill is for 
long-distance calls made in September AND October. All other dates remain the 
same.

What should my posting date be?

1) same as above?
2) same as above and then I have to accrue September’s charges back and forth 
from the above date?
3) some date in September and then accrue October’s charges back and forth?
4) something else?

What should the ‘opening date be?

1) same as above?
2) some date in September?
3) something else?

(Thankfully, I don’t have to deal with customer charge-backs using the business 
features in this scenario as not only is there a limitation of one customer & 
job per bill, there is the added limitation of one period. But it would be nice 
to see how much expense a particular customer is ‘costing' me.)

Derek, thank you very much for your time and effort and thank you for writing 
the business features in the first place! Long ago I was sold on GnuCash over 
other options precisely because I found this mailing list and found that 
developers are active on it. I can’t express enough how valuable that is and 
how much it is appreciated. I shudder to think of the cold, faceless brick wall 
I would encounter (and have) with other software. GnuCash and its developer 
team deserve FOSS awards for sure.

Please don’t take anything I say here as any form of criticism or complaint. 
I’m merely trying to understand how this is supposed to work. (furthering my 
understanding of accounting in the process) I appreciate that you wrote these 
features based on your own needs and experience.
 
Regards,
Adrien

> On Dec 12, 2017, at 10:32 AM, Derek Atkins  wrote:
> 
> Hi,
> 
> Adrien Monteleone  writes:
> 
>> I noticed something about the business features that isn’t working as
>> expected, or at least not optimally.
>> 
>> When entering a bill or invoice, each line item allows you to put a date.
>> 
>> When posting that bill or invoice, only the posting date is used - not
>> the individual line-item dates.
>> 
>> While I can see that this behavior might make sense to most people, it
>> seems to me to be a carry-over from the days of paper ledgers that is
>> very inefficient.
> 
> Not at all.  All the invoice data (inluding line-item date, description,
> etc) is all "metadata" in terms of your Chart of Accounts.  When you
> post the invoice, GnuCash totals up the amount and posts the invoice
> totals into your CoA.  Of course this happens at the "Post Date" --
> that's exactly what it's supposed to do.
> 
> There is a "newer" feature that tells the posting not the accumulate
> splits.  This will map each line-item into a single split (instead of
> accumulating all line-items that go to the same account into a single
> split).  However, because a transaction only has one date 

Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Derek Atkins]

Adrien Monteleone  writes:

> I’ve already got the pre-paying and expensing part straight. My issue
> isn’t the idea of a pre-paid asset, my issue is that it is increasing
> when I post the bill, not when I pay it. I understand the difference
> between recording events vs. actual money exchanges but this is a
> question of ‘when is the event?’

You're asking yourself the difference of cash vs accrual.  There is a
huge process about "revenue recognition" in terms of how/when you are
supposed to recognize it, and different companies are required to use
different methods.

When I wrote the business features I chose one that made sense to me at
the time.  Honestly, I wrote it for me, for my own uses in my consulting
company, but tried to make it general enough for others to use.

Patches are always welcome, but keep in mind that there are still a lot
of invariants that would make different model "hard" to implement.  See
https://bugzilla.gnome.org/show_bug.cgi?id=95700 for 15 years of
discussion in this topic.

> 1. When the insurer generates the bill?
> 2. The date I arbitrarily ‘post’ the bill in GnuCash.(usually the day
> I enter it, or the ‘effective date’ of service.)
> 3. The due date of the bill and thus effective date of the beginning
> of the policy?
> 4. The date I actually pay the bill and decrease my cash asset?

This is why there are two dates (well, three dates), an invoice/bill
date, a post date, and then a due date.  The invoice date is #1, your
post date is #2, the due date is #3.  And of course #4 is when you
process the payment.

As for the date that the transaction should touch the Income/Expense
account, that varies completely based on how you recognize revenue (and
expenses).  The business features, as written, use #2 as that date.

> The problem is that 1&2 are happening in November and May of each
> year, while 3&4 are usually happening in December & June
> respectively. Thus, balance sheets for November and May are overstated
> in the pre-paid asset category.
>
> On the invoicing side of the question, I didn’t think of an
> ‘unbilled-work’ account. Thanks. I’ll use that.
>
> As for normal post-billed expenses crossing multiple periods I guess
> the only option is correcting entries, but that sure seems like a
> limitation of paper that computers should be able to handle more
> easily. The data is already being entered. It just isn’t being used by
> the software. I’ll file an enhancement request.

Don't bother -- It'll be closed as a duplicate.  Use the existing one.

> Regards,
> Adrien

> Please remember to CC this list on all your replies.
> You can do this by using Reply-To-List or Reply-All.

-derek

-- 
   Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
   Member, MIT Student Information Processing Board  (SIPB)
   URL: http://web.mit.edu/warlord/PP-ASEL-IA N1NWH
   warl...@mit.eduPGP key available
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Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Derek Atkins]

Hi,

Adrien Monteleone  writes:

> I noticed something about the business features that isn’t working as
> expected, or at least not optimally.
>
> When entering a bill or invoice, each line item allows you to put a date.
>
> When posting that bill or invoice, only the posting date is used - not
> the individual line-item dates.
>
> While I can see that this behavior might make sense to most people, it
> seems to me to be a carry-over from the days of paper ledgers that is
> very inefficient.

Not at all.  All the invoice data (inluding line-item date, description,
etc) is all "metadata" in terms of your Chart of Accounts.  When you
post the invoice, GnuCash totals up the amount and posts the invoice
totals into your CoA.  Of course this happens at the "Post Date" --
that's exactly what it's supposed to do.

There is a "newer" feature that tells the posting not the accumulate
splits.  This will map each line-item into a single split (instead of
accumulating all line-items that go to the same account into a single
split).  However, because a transaction only has one date associated
with it, that date is the post date.

I don't see how this is inefficient.

[snip]
> The same is possible for invoicing your customers. It is entirely
> possible to invoice a customer for work done in a previous period (or
> multiple previous periods - such as job-based billing) and not receive
> payment for it till much later.

This is true.  This is the difference between accrual and cash
accounting.  The Business Features are 100% accrual.

> GnuCash has no issue with letting you post bills and invoices
> independent of actual money exchange. (the whole purpose of the
> business features) But it seems it does not allow you to recognize
> revenue and expenses in their proper periods.

This is true.  See https://bugzilla.gnome.org/show_bug.cgi?id=95700

> Am I missing something?

15 years of history.  ;)

> Regards,
> Adrien

> Please remember to CC this list on all your replies.
> You can do this by using Reply-To-List or Reply-All.

-derek
-- 
   Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
   Member, MIT Student Information Processing Board  (SIPB)
   URL: http://web.mit.edu/warlord/PP-ASEL-IA N1NWH
   warl...@mit.eduPGP key available
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Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Adrien Monteleone]

Thanks Dave,

I was already operating this way per the insurance issue. 

The only difference that I can’t figure out is how to handle pre-billing. 
(you’ve well described being billed AFTER making that 6 month pre-payment)

I’ve already got the pre-paying and expensing part straight. My issue isn’t the 
idea of a pre-paid asset, my issue is that it is increasing when I post the 
bill, not when I pay it. I understand the difference between recording events 
vs. actual money exchanges but this is a question of ‘when is the event?’

1. When the insurer generates the bill?
2. The date I arbitrarily ‘post’ the bill in GnuCash.(usually the day I enter 
it, or the ‘effective date’ of service.)
3. The due date of the bill and thus effective date of the beginning of the 
policy?
4. The date I actually pay the bill and decrease my cash asset?

The problem is that 1&2 are happening in November and May of each year, while 
3&4 are usually happening in December & June respectively. Thus, balance sheets 
for November and May are overstated in the pre-paid asset category.

On the invoicing side of the question, I didn’t think of an ‘unbilled-work’ 
account. Thanks. I’ll use that.

As for normal post-billed expenses crossing multiple periods I guess the only 
option is correcting entries, but that sure seems like a limitation of paper 
that computers should be able to handle more easily. The data is already being 
entered. It just isn’t being used by the software. I’ll file an enhancement 
request.

Regards,
Adrien

> On Dec 10, 2017, at 1:49 AM, DaveC49  wrote:
> 
> Hi Adrien,
> Add ressing this point: 
> "Pre-paid expenses are a special case, but I should think it possible to
> address it with the business features somehow. I’ve thought of using special
> clearing accounts but I can’t seem to figure where they might go. Posting a
> bill for a pre-paid expense (but not yet actually paying it) produces a
> liability balanced by what exactly? You don’t yet have a new asset because
> you haven’t paid the bill yet. You don’t have an additional liability. You
> haven’t realized any income or expense and your equity position hasn’t
> changed. What should balance Liabilities:AP for an as yet un-paid pre-paid
> expense? "
> 
> I think this goes to the differences between accrual accounting and cash
> accounting as a separate issue from sales/ purchases made on credit which is
> the real purpose of the A/R and A/P accounts. They are not specific to
> accrual accounting but may apply for both.
> 
> If for example you purchase insurance in advance to cover a specific period
> with a specified start date and end date for the cover but you are to be 
> invoiced at a later date by the insurer, then you actually purchase the
> insurance at the time you enter into the agreement to buy the insurance.
> Under accrual accounting you would record the purchase at that date.
> 
> At this point I would debit an Asset:Prepaid Insurance for the agreed amount
> and credit a Liability:PrepaidInsurance for the agreed amount to record that
> purchase in your accounts. 
> 
> When you enter the period which the insurance provides cover, you would then
> expense the insurance. Depending on the nature of the business you might do
> this monthly, for example. Each monthly transaction would be a credit of the
> appropriate fraction of the agreed amount to the Asset:PrepaidInsurance
> account and a debit to an Expense:Insurance account for each month of the
> period of the cover. This satisfies the matching principle by matching the
> timing of the expense to the timing of the income earned as a result of
> incurring that expense. 
> 
> When you receive the invoice for the insurer then an appropriate action
> would then be to raise a Bill crediting Liability:A/P for the agreed amount
> with a corresponding debit to Liability:PrepaidInsurance for the same amount
> as the balancing split of the transaction.
> 
> The final transaction would be when you pay the bill with a credit to An
> Asset:Bank account and debit to the Liability:A/P account.
> 
> I haven't tested how Gnucash's business feature, particularly the reporting
> handles the above, specifically as yet but will try it out.
> 
> For a Cash Accounting treatment, you would still raise Bill when the insurer
> sends you their invoice debit the Liability:A/P and crediting
> Expense:Insurance posting it at the date of the invoice. You would then
> record the payment as above when the payment is actually made to them. Where
> this runs into problems in calculating profit and loss is when the period of
> insurance does not match the accounting period (and particularly if premiums
> were increasing significantly annually). 
> 
> One appropriate treatment for this would be to then capitalise the value of
> any unexpired insurance at the end of the accounting period and then expense
> it in the next accounting period. A pair of transactions, one transaction
> debiting an 

Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Mike or Penny Novack]

On 12/9/2017 7:38 PM, Adrien Monteleone wrote:

Thanks Maf.,

But it seems the entire invoice posts together on the posting date, not by 
line-item date. I just double checked several of them that crossed period 
boundaries.

I’m in the U.S., not sure what the specific rules are on invoice time frames, 
but GAAP would say the invoice/bill date doesn’t matter - what matters is when 
you actually do the work or incur the expense.

Going to put my two cents in (even though I am  not doing business 
accounting)


More complicated that that (the dates) and I will give you a concrete 
example from my own experience as customer. We had a solar system 
installed and we had a CONTRACT with the installer and this contract 
specified dates/events that made various portions of the job payable. 
Things like "upon signing contract" (of course no actual work done), 
upon delivery of materials (that one at least matches the above), upon 
completion/up and running but THAT depended on actions outside of the 
control of the vendor (when building/electrical inspector signed off, 
when electric utility came out for final hook up and they stall that as 
much as they can).


In other words, of all of the payments, only ONE was related to when the 
vendor actually do the work.


However I agree that the date an invoice is prepared is irrelevant. 
Should have effective dates for the charges.


Michael D Novack
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Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[DaveC49]

Hi Adrien,
Add ressing this point: 
"Pre-paid expenses are a special case, but I should think it possible to
address it with the business features somehow. I’ve thought of using special
clearing accounts but I can’t seem to figure where they might go. Posting a
bill for a pre-paid expense (but not yet actually paying it) produces a
liability balanced by what exactly? You don’t yet have a new asset because
you haven’t paid the bill yet. You don’t have an additional liability. You
haven’t realized any income or expense and your equity position hasn’t
changed. What should balance Liabilities:AP for an as yet un-paid pre-paid
expense? "

I think this goes to the differences between accrual accounting and cash
accounting as a separate issue from sales/ purchases made on credit which is
the real purpose of the A/R and A/P accounts. They are not specific to
accrual accounting but may apply for both.

If for example you purchase insurance in advance to cover a specific period
with a specified start date and end date for the cover but you are to be 
invoiced at a later date by the insurer, then you actually purchase the
insurance at the time you enter into the agreement to buy the insurance.
Under accrual accounting you would record the purchase at that date.

At this point I would debit an Asset:Prepaid Insurance for the agreed amount
and credit a Liability:PrepaidInsurance for the agreed amount to record that
purchase in your accounts. 

When you enter the period which the insurance provides cover, you would then
expense the insurance. Depending on the nature of the business you might do
this monthly, for example. Each monthly transaction would be a credit of the
appropriate fraction of the agreed amount to the Asset:PrepaidInsurance
account and a debit to an Expense:Insurance account for each month of the
period of the cover. This satisfies the matching principle by matching the
timing of the expense to the timing of the income earned as a result of
incurring that expense. 

When you receive the invoice for the insurer then an appropriate action
would then be to raise a Bill crediting Liability:A/P for the agreed amount
with a corresponding debit to Liability:PrepaidInsurance for the same amount
as the balancing split of the transaction.

The final transaction would be when you pay the bill with a credit to An
Asset:Bank account and debit to the Liability:A/P account.

I haven't tested how Gnucash's business feature, particularly the reporting
handles the above, specifically as yet but will try it out.

For a Cash Accounting treatment, you would still raise Bill when the insurer
sends you their invoice debit the Liability:A/P and crediting
Expense:Insurance posting it at the date of the invoice. You would then
record the payment as above when the payment is actually made to them. Where
this runs into problems in calculating profit and loss is when the period of
insurance does not match the accounting period (and particularly if premiums
were increasing significantly annually). 

One appropriate treatment for this would be to then capitalise the value of
any unexpired insurance at the end of the accounting period and then expense
it in the next accounting period. A pair of transactions, one transaction
debiting an Asset:UnexpiredInsurance account and crediting the
Expense:Insurance account in the current period with a corresponding
reversing transaction recorded during the next accounting period, would
achieve this. This would have to be allowable under the applicable
legislation which authorises the use of Cash Accounting of course.

"When entering a bill or invoice, each line item allows you to put a date. 

When posting that bill or invoice, only the posting date is used - not the
individual line-item dates. "

You would in principle adopt a similar approach in accrual accounting for
recoding income earned but not yet invoiced.

When you perform the work debit an Assets:UnbilledWork account for the
amount of the work and credit a sutable  Income: account. This records the
income in the accounts at the time the work is carried out.

When you bill the customer and raise the invoice and post it, you debit
Assets:A/R and credit Assets:Unbilled Work with the line dates matching the
dates of debits to this account as the work was performed covered by this
invoice. 

Then when payment is received from the customer your Asset:Bank account is
debited and the Liability:A/R account is credited for the amount of the
payment.

I think the above treatment meets the income recognition principle and the
matching principle in the GAAP and is necessary to do so, not just as a
carry over from paper ledgers, but an essential part of meeting those
principles. 

One of the difficulties is that what is meant by GAAP may be defined
differently in different jurisdictions. Not all countries, notably the US
and with Brexit possibly the UK, have adopted the IFRS standards specific
version or equivalent of the GAAP and some who have may 

Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Adrien Monteleone]

Thanks Maf., 

But it seems the entire invoice posts together on the posting date, not by 
line-item date. I just double checked several of them that crossed period 
boundaries.

I’m in the U.S., not sure what the specific rules are on invoice time frames, 
but GAAP would say the invoice/bill date doesn’t matter - what matters is when 
you actually do the work or incur the expense.

This isn’t strictly a tax reporting issue anyway. (other than how recognition 
affects net income that is)

I’m more concerned with an accurate financial performance picture, which is 
what GAAP is for.

Apparently the business features make little headway over pen and paper in this 
regard.

Thanks though.

Regards,
Adrien

> On Dec 9, 2017, at 4:23 PM, Maf. King  wrote:
> 
> On Saturday, 9 December 2017 21:06:23 GMT Adrien Monteleone wrote:
> 
>> The same can easily happen for invoicing customers. If I generate an invoice
>> in December to a customer for work done in October and November, I can’t
>> realize the appropriate raevenue in each period. I can only choose one month
>> or the other. (or more likely, December since that will be the posting date
>> - which is entirely incorrect)
>> 
> 
> Hi Adrien,
> 
> without opening GC to see if this is correct, my impression is that if I 
> create an invoice and have 2 line entries
> 15-Oct-2017  work done income:consulting £100
> 15-Nov-2017 other work done income:making £300
> 
> both on one invoice posted 3-Dec-2017, then the *income report* by month 
> would 
> show the correct items within the correct month totals.  Happy to be told 
> that 
> this is not the case, as I haven't explicitly tried it before posting.
> 
> Not withstanding that, my understanding is that under UK rules the document 
> date is the relevant one for tax reporting - I always set my posting date to 
> the document date.  And IIRC, an invoice should be raised within 2 weeks of 
> the "sale" being made. Of course, other jurisdictions may work differently.
> 
> 0.02
> Maf.
> 
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Re: Invoice & Bill Posting Date Issues Across Multiple Periods

[Maf. King]

On Saturday, 9 December 2017 21:06:23 GMT Adrien Monteleone wrote:

> The same can easily happen for invoicing customers. If I generate an invoice
> in December to a customer for work done in October and November, I can’t
> realize the appropriate raevenue in each period. I can only choose one month
> or the other. (or more likely, December since that will be the posting date
> - which is entirely incorrect)
> 

Hi Adrien,

without opening GC to see if this is correct, my impression is that if I 
create an invoice and have 2 line entries
15-Oct-2017  work done income:consulting £100
15-Nov-2017 other work done income:making £300

both on one invoice posted 3-Dec-2017, then the *income report* by month would 
show the correct items within the correct month totals.  Happy to be told that 
this is not the case, as I haven't explicitly tried it before posting.

Not withstanding that, my understanding is that under UK rules the document 
date is the relevant one for tax reporting - I always set my posting date to 
the document date.  And IIRC, an invoice should be raised within 2 weeks of 
the "sale" being made. Of course, other jurisdictions may work differently.

0.02
Maf.

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