3.4.11 Accruals and Prepayment

Access via the Workbench menu: Finance -> Accounts Payable -> Accruals and Prepayments

Blocks Online allows users to record accruals and prepayments in relation to the expenditure incurred by a block in any given financial year. Accruals and prepayments are often recorded at the end of a financial year to ensure that the financial reports accurately reflect the expenditure incurred during the year.

Note: If you are not familiar with the use of journal entries, then you may wish to discuss this with your accountant prior to making any financial adjustments using these screens.

The Accruals and Prepayments screen shows a summary of all the journal entries that you have created for your Blocks and you are able to filter by individual Block and date ranges to just show those records you are interested in.

To create a new journal entry click on ‘Add New Journal’ and a pop-up screen will appear to enter the relevant details.

Accruals

An accrual is used to recognise expenditure for works when an invoice for those works has not yet been received. For example, if the financial year for a block runs from 1 January to 31 December and an accountant will be charging £500 to prepare the accounts then on 31 December the accountant would not yet have issued an invoice for their work. However, if you wish to recognise the expenditure then you would raise a journal as follows:

The result of this journal will be to increase the Service Charge ‘Accountancy Fees’ expenditure in 2019 and record an Accrual liability on the Balance Sheet.

Prepayments
A prepayment is used to recognise any expenditure that has been recorded in one financial year that relates to a future financial year. For example, if buildings insurance of £1,200 was recorded on 1 September 2019 for the year to 31 August 2020, you may not wish to recognise the expenditure that relates to 1 Jan – 31 August 2020 (£800) in the 2019 accounts. As a result you could enter the following journal:

The result of this journal will be to reduce the Service Charge ‘Building Insurance’ expenditure in 2019 by £800 and record a Prepayment asset on the Balance Sheet.

Auto-Reversal

The auto-reversal function allows users to create an equal, but opposite journal on a future date. If, for example, an auto-reversal journal was created for the previous accountancy fee accrual (for 1 January 2020) then this reversal journal would look as follows:

The two journals are linked together and can be viewed by clicking the ‘View’ button. Although connected the two journals can be independently edited. However, if one journal is deleted then the other journal is also deleted.

Split

For any blocks that have multiple schedules, the expenditure items (the ‘Accountancy Fees’ and the ‘Buildings Insurance’ in the examples above) can be split between the different schedules to ensure that the expenditure is correctly allocated. A * symbol next to the ‘Split’ button indicates that the expenditure has not yet been split between schedules.

The ‘split’ of expenditure between schedules can either be performed when the journal is first raised, or it can be allocated to schedules at a future date, for example at year-end.

Note: If expenditure is split between schedules and the Journal is subsequently edited, then the allocation is deleted; the split by schedule will need to be performed again after the journal has been edited.

To see a video of this, please click on this link:  Accruals and Prepayments

Example:

2020 - 2021

Scenario 1) If you have a supplier invoice for Dec 2020 - load it. The expenditure will appear on the expenditure reports; and the unpaid liability will appear on the Balance Sheet (BS) as "Costs relating to this or previous period but not yet paid"

Scenario 2) If you do not have a supplier invoice - create an accrual journal, as normal, and a reversal journal (1 Jan 2021). T he expenditure will appear on the expenditure reports; and the unpaid liability will appear on the BS as "Accruals"

Scenario 3) If you have made a prepayment - load invoice with full payment and the prepayment journal and journal reversal. The original prepayment journal will reduce the expenditure on the expenditure reports; and the prepayment will appear on the BS as "Prepayments"

2019 - 2020 i.e. pre BOL

Scenarios 1 and 2) If you have recorded the invoice in the accounts prior to Jan 2020 OR if you have recorded it as an accrual then load as an opening balance.  This will appear on the BS as " Costs relating to this or previous period but not yet paid"

3) If you have made a prepayment :

Create a 'dummy' Prepayment bank account for the prepayment funds (as we do for funds from a previous agent) e.g. with £31k as the opening balance

Record the prepayment portion of insurance invoice (i.e. £31k) on 1 Jan 2020 and pay it from the prepayment bank account.

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