[Advacs-discuss] Prepayments

[Helmut Wollmersdorfer]

Oliver Elphick wrote:
> On Tue, 2004-08-31 at 10:06, Helmut Wollmersdorfer wrote:

> Balance sheet accounts are naturally balanced off and carried down on
> the same account; where they appear on the balance sheet is controlled
> by the subheading assigned to the account (or to its control account if
> it is in a subsidiary ledger); thus the sales ledger control account
> will be assigned to the Trade Debtors section of the balance sheet and
> so all balances on the sales ledger will go there.  It is possible to
> assign debit and credit balances to different subheadings.  (Up till now
> I had not considered the problem of negative balances in the sales
> ledger - they would have been aggregated with the mass of sales ledger
> balances, but I see that this would be incorrect.  I think that control
> accounts need an extra flag to say whether balances on different
> accounts should be netted off or should be accumulated into separate
> debit and credit totals.  In the GL schema, this flag belongs on the
> ctrl_ac_type table.)

I think, that this can be solved by two different control accounts for 
the sales ledger:
- customer accounts with debit balance go to "customer" control account, and
- customer accounts with credit balance go to "prepayment" control account

> 2. The second type of accrual is used to take account of income and
> expenditure in the period to which it relates, even when the actual
> transaction postings have their dates in other periods.


[...]

> An accrual of this type can be regarded as an ephemeral journal entry -
> it applies at the period end and is automatically reversed the next day.

O.k. This is another possibility to manage prepayments correctly. Maybe 
this is a more convenient method.

What I have in mind are such typical contracts as I know them from 
building and construction:
- prepayment of 30% at sign of contract, and reverse bank guarantee
- next 30% payment at begin of work
- 40% at end of project
- 10% quality deposit apply to partial payments,
   exchangable against bank guarantee
- 3% quality deposit after accepted quality, for 3 years,
   exchangable against bank guarantee
- 3% cash discount for payment within 14 days
- "set of" invoices for use of water, electricity, damages etc.
   at project location

Even in a small company with 50 employees you can have hundreds of such 
projects in different states, where you have to care that this projects 
are mapped to the financial report in a correct way.

This means:
- prepayments
- accrual of earnings (e.g. accruals for expected cash discounts)
- accrual of expenditures
- work in progress
- discounting of long term receivable open items (e.g. quality deposits)
- bank guaranties as "eventual liability" in the financial report

Discounting of long terms can be an extra module (or script, plug in, 
etc.), as this usually results in a list, where you only need to enter a 
simple transaction with the sum, and reverse it in the next period.

But all other things of the work flow should be supported in daily business.

>>5) According to contract money transfer through a third party can be 
>>agreed. E.g. if somebody builds a large building, he has large 
>>VAT-returns on his tax account, and his suppliers must pay VAT to the 
>>tax office. Thus it is sometimes usual to agree transfers via the tax 
>>office.

> I don't understand this; who is making paynments to whom?

Assume company, customer, and tax office.

Invoice company -> customer EUR 100.000,-

Costumer with Tax-Number 4711 at Tax-Office Graz has to get money from 
the Tax-Office, e.g. 120.000,-.

Company has to pay taxes at Tax-Number 0815 to Tax-Office Wien, e.g. 
150.000.

If now the customer gives order to transfer via tax-offices an amount
of 80.000, this is the situation of the individual ledgers:

Customer          before      after
--------          ------      -----
company (AP)    -100.000    -20.000
tax-office      +120.000    +40.000

Tax-Office Graz
---------------
tax-number 4711 -120.000    -40.000

Tax-Office Wien
---------------
tax-number 0815 +150.000    +70.000

Company
-------
customer (AR)   +100.000    +20.000
tax-office      -150.000    -70.000

In this case the Tax-Offices work like a bank, but no real payment happens.

Customers does:  company/tax-office  80.000
Company does:    tax-office/customer 80.000
Tax-O Graz does: 4711/large pot      80.000
Tax-O Wien does: large pot/0815      80.000

>>6) From 1) to 5) follows, that open items in the same business partner 
>>account should go to different parts of the balance sheet, depending on 
>>their sign.

> Customers and suppliers will naturally have separate accounts since they
> will belong to different ledgers, even if the same person is both
> customer and supplier.  

I meant one and the same account, e.g.

customer account 4711
------------------------------
invoiced open item     +10.000
prepayment             -10.000
------------------------------
balance                      0

this should be in the financial report:
prepayments by customers -10.000
accounts receivables     +10.000


> It would be a good thing to have the concept of
> a person to which separate accounts could refer to link them together.

For data maintenance this is an advantage, as this "person" has same 
address, phone, etc. It would also be a consequent design of mapping the 
structure of real world entities into DB-design. This will allow 
inheritance and defaulting attributes.

In small business everything will be identically, but more complex 
relations are possible along the whole work flow of a contract.
Addresses and communication contacts can be different for each of the 
following steps:

- letter of inquiry
- order/contract
- point(s) of delivery or service
- invoice (more than one to different addresses)
- payment (e.g. central payment of company groups)

Just to remember this for the other modules.

Helmut Wollmersdorfer