[Advacs-discuss] Prepayments

[Oliver Elphick]

On Tue, 2004-08-31 at 13:32, Helmut Wollmersdorfer wrote:
> Oliver Elphick wrote:
> >    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

The control account entry is an attribute of the individual posting line
(at least in the current design) and you cannot have that switching
according to thecurrent account balance.  I think it is better to assign
the control account to 2 general ledger subheadings and have a flag to
say that individual accounts under a control account cannot have their
balances aggregated.  It is only at the financial reporting level that
you need to care (much) about splitting the balances between debits and
credits so the control of that distinction really belongs at that level.

> > 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.

I always found it so.

> 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.

This requires a separate projects module; it is too much detail for
companies that are merely buying and selling goods.  We should try to
separate detailed requirements like that out from the standard modules,
so that they don't cause confusion to people who neither need nor
understand them.

> >>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?

...

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

I can't imagine HM Customs & Excise being willing to undertake any such
thing!


> >>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

Then this is a type 2 accrual.  It may fall out of the projects module,
or it may have to be handled as a "manual" entry.

> > 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.

So we have:

   person  ........................... addresses
     |
     +-------------+
     |             |
  customer      supplier

-- 
Oliver Elphick                                          olly@lfix.co.uk
Isle of Wight                              http://www.lfix.co.uk/oliver
GPG: 1024D/A54310EA  92C8 39E7 280E 3631 3F0E  1EC0 5664 7A2F A543 10EA
                 ========================================
     " ...Take heed, and beware of covetousness; for a man's
      life consisteth not in the abundance of the things 
      which he possesseth."       Luke 12:15