Accruals Overview

Jason

22 August 2024 11:07

Accruals

Accrual transactions are posted to ensure that income/expenditure is accounted for in the correct accounting period.

Accruals can be posted in any period, but typically most schools will make use of them at year end.

Types of accruals:

'Receipts in Advance' (ACR)
Prepayments (PRE)
Debtors (DBT)
Creditors (CRT)

Accrual transactions are not associated with any bank account in RM Finance. Therefore, income/expenditure transactions should also be posted when they are received/paid so that it can be reconciled at the bank.

The information below details how to post each type of accrual transaction in RM Finance. Please check with your accountant if you need advice on which proportion of income/expenditure needs to be accrued.

Receipts in Advance

Income has been received, but the goods/services have not yet been supplied to the customer. For example, a parent has paid for school uniform in June, but the uniform will not be delivered until August. The uniform income is actually to be accounted for in August.

Posting a 'Receipts in Advance' transaction:

Analysis code: Always posting to income analysis code.
Income source is not recorded on accrual.
There is no bank account associated with this accrual transaction.

'Receipts in Advance' transactions posted	How transaction appears in current period	How transaction appears in following period	Transaction accounted for in which accounting period
1. Income transaction to record money received, i.e. £200 income analysis/budget. Transaction allocated to bank account.	INC - 200		Income accounted for in next accounting period.
2. Accrual - 'Receipts in Advance' posted to the same income analysis/budget.	ACR 200
After running period end:
3. 'Receipts in Advance' accrual reversed automatically. * indicates processed accrual		ACR* - 200

Outcome: £200 income received and accounted for in the next accounting period.

Prepayments

Paid for a service from a supplier, which has not yet been received. For example, telephone line rental paid quarterly in advance. The telephone expense is actually expense to be accounted for in the next accounting period.

Posting a Prepayments transaction:

Analysis code: Always posting to expenditure analysis code.
Supplier details are not recorded on accrual.
There is no bank account associated with this accrual transaction.

Prepayments transactions posted	How transaction appears in current period	How transaction appears in following period	Transaction accounted for in which accounting period
1. Expense transaction posted to record invoice paid, i.e. £150 income analysis/budget. Transaction allocated to bank account.	EXP 150		Expenditure accounted for in next accounting period.
2 .Accrual - Prepayments posted to the same expenditure analysis/budget.	PRE - 150
After running period end:
3. Prepayments accrual reversed automatically. * indicates processed accrual		PRE* 150

Outcome: £150 expenditure paid and accounted for the next accounting period.

Debtors

A customer who owes you money. For example, a parent who has not paid the dinner money for the dinner the child has eaten. The dinner money income should be accounted for in the current accounting period.

Posting a Debtors transaction:

Analysis code: Always posting to an income analysis code.
Income source is recorded on accrual.
There is no bank account associated with this accrual transaction.

Debtors transactions posted	How transaction appears in current period	How transaction appears in following period	Transaction accounted for in which accounting period
1. Accrual - Debtors posted, i.e. £20. Using income analysis code and income source.	DBT - 20		Income accounted for in this accounting period.
After running period end:
2. Debtors accrual reversed automatically. * indicates processed accrual		DBT* 20
3. Income transaction posted to same analysis/income source when the money is received. Transaction allocated to bank account.		INC - 20

Outcome: £20 income accounted for in the current accounting period.

Creditors

Money you owe to a supplier. That is, you have received new computers but not yet paid the invoice. The computer expense should be accounted for in the current accounting period.

Posting a Creditors transaction:

Analysis code: Always posting to an expenditure analysis code.
Supplier is recorded on accrual.
There is no bank account associated with this accrual transaction.

Creditors transactions posted	How transaction appears in current period	How transaction appears in following period	Transaction accounted for in which accounting period
1. Accrual - Creditors posted, i.e. £600. Using expenditure analysis code and supplier.	CRT 600		Expenditure accounted for in this accounting period.
After running period end:
2. Creditors accrual reversed automatically. * indicates processed accrual		CRT* - 600
2. Expenditure transaction posted to same analysis/income source when invoice is paid. Transaction allocated to bank account.		EXP 600

Outcome: £600 expenditure accounted for in the current accounting period.

Reversing Accruals

Corrections to accruals are carried out in a similar way to correcting income/expenditure transactions (Transactions > Adjustments and Corrections > Accrual Reversal > locate the transaction and click Reverse).

Note: After running year end, you must access Period 13 to reverse an accrual posted in the previous year. Therefore, you should go to System > Switch the Financial Year

When in period 13, go to Transactions > Adjustments and Corrections > Accrual Reversal > locate the transaction and click Reverse.