(This article is for Full Budget users only)
Sometimes you pay a one-year subscription in advance, say a subscription fee 120GBP+VAT, and its cost of 10GBP in P/L (Profit & Loss) is allocated for each month for a year. Or, the other way around, you receive money from customers as prepayment and allocate it with coming invoice issue.
If you are already using this accounting technique, you can set up the cash flow plan in the Full Budget Planner in CaFE, using our Prepayment setting as below.
For wages related deduction items, such as health insurance, please go here.
[General Prepayment Setting]
1. Set up a B/S budget item for prepayment
Your prepayment item has to be recognised as a Prepayments in CaFE to work properly.
To set up the budget item category of the item, select the Balance Sheet tab in your budget and click the edit option menu on the target item and select “Change budget item category”.
If you cannot find the target item in the Balance Sheet, then click the menu icon at the right top and select “Add new budget items” >> “Balance Sheet” and add the item to the budget first.
If the Current Budget Item Category shows any other category than "Prepayments", then select Prepayments from the list and click the Save button.
2. Set up a P/L budget item for allocation
This budget item is for allocating a prepayment amount on a monthly basis.
To set up allocated amounts on a budget item, select the Profit and Loss tab in your budget and click the edit option menu on the target item and select “Edit this budget”.
If you cannot find the target item in the Profit and Loss, then click the menu icon at the right top and select “Add new budget items” >> “Profit and Loss” and add the item to the budget first.
For example, if you allocate a subscription fee 120GBP billed annually (Prepayment item in B/S) to 10GBP each month as a monthly expense (Expense item in P/L), you can enter 10 (GBP increase) and click the Simulate button. If it is ok, then click the Save New Budget button to save the changes.
3. Set up a cash flow plan for prepayments
This set up is to let CaFE know how to create cash flows for prepayments.
To set up this, select the Cash Flow tab in your budget, and click the edit option menu on the target P/L item and select “Change business rule”, then go to the Prepayment tab. If you cannot find the item in the Cash Flow plan, click the menu icon at the right top and select “Add new budget items” >> “Cash Flow” and add the item to the cash flow plan first.
For example, the setting below tells the followings.
- Any prepaid amounts for this item should be accounted on "Prepayments" (Set up in the step 1 above)
- A subscription fee is billed on the 10th of April, every year
- The monthly expense allocation starts in the same month as the billing date, April in this case
For more information, please refer to the help texts in the screen.
4. Recalculate the budget
To reflect the settings in the current budget, click the Recalculate button.
In the Cash Flow plan, a payment for the annual subscription fee occurs in April 2021 with VAT amount (in this example, 20%, but you can change it in the Basic tab in the step 3 above).
In the B/S budget, the prepayment item shows that 10 is allocated from its balance each month, starting from April 2021.
[Monitoring Cash Flows]
To monitor the actual performance, you need to authorise the budget and select it in the Budget List.
Please refer to this article for more details about budget monitoring.
Here is one technique to track actual cash flows for prepayments accurately.
When creating an actual payment transaction in your accounting system, set Code of the P/L item (can be found in the Chart of Accounts) inside the Description field of a line item for the prepayment account specified in the step 3.
Then CaFE will link the payment to the appropriate item in the cash flow plan when synchronising data.
[Prepayment Setting for Wages Deduction Items]
Let's say, you pay for the company health insurance for the next 12 months in advance, and it is allocated for each wage payment to employees.
1. Set up accounts
Firstly, set up the prepayment account (in this example, we use "Medical Insurance") in the same way as the General Prepayment Setting.
(Please see here)
Secondly, check if the prepayment account is already in the Profit and Loss. If you cannot find the account in the Profit and Loss budget, add the item from “Add new budget items >> Profit and Loss” screen.
2. Set up a wages deduction
In this scenario, please select the Cash Flow tab in your budget, then find the Overall Net Wages item and click the edit option menu and select “Change business rule”.
In the Other Deductions in P/L, please select the prepayment account set up in the step 1 (“Medical Insurance” in this example) and click the Save button.
Then enter the percentage of deduction amount on each wage payment and click the Save button. The example below shows 10% of gross wage is deducted for the prepayment account (Medical Insurance in the example below).
Please note that currently the Budget Planner supports % setting only.
3. Set up a cash flow plan for prepayments
This step is the same as the step 3 in General Prepayment Setting.
Select the Cash Flow tab and click the edit option menu in your prepayment account under Operating Cost. If you cannot find the account, click Add cash flow plan items and add the account to the cash flow plan.
Then simply follow the step 3 in General Prepayment Setting. The setting for this example is below.
4. Recalculate the budget
To reflect the settings in the current budget, click the Recalculate Budget button.
In this example, the monthly budget for gross wages (“Direct Wages” account is used in the sample below) is 1,000 in the P/L budget.
In the Cash Flow Plan, a payment for the health insurance, which is 1,200 (10% of the monthly gross wage 1,000 multiplied by 12), is now planned.
In the B/S budget, the balance in April for Prepayments now shows 1,100, meaning that 1,200 increase by payment and 100 decrease by allocation, then 100 is allocated for wages on a monthly basis afterwards.
Please note that the balances before April 2022 are the remaining balances for the previous year. CaFE assumes the same settings apply to the previous year.
[Current limitation]
- Prepayment setting is not available for Overall Net Wages, and Corporation Tax.
- VAT accrual is calculated upon prepayment accrual
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