Hi there, Looking for advice on next steps please. Here's the situation. We receive invoices for various insurance throughout the month, however, each vendor covers different periods. E.g. assume we are in May - Life insurance: Due on the 15th - and covers the following month (June) - STD: Due on the 15th - and covers the past month (April) - Health/ Dental: Due on the 1st for the current month (May) I joined a month ago and the previous accountant was recording invoices as a bill in the month it was received. Therefore, it is being expensed and appears on P&L in month it was paid, not the month of corresponding coverage. This also matters because we are a nonprofit, and class out the expenses based on timesheet percentages per program. The way it is currently being handled, if we go back to the above example, all those bills would be classed out to May. That's wrong because they don't all reflect May coverage. I have to go back to the beginning of the FY and adjust them to properly reflect the period. Please advise which method you think I should do. 1 - Manually adjust the invoice date to accurately reflect the period it covers. This is the simplest way for past transactions and I can manually edit new invoices moving forward- I just want to confirm that I am allowed to do that. 2- Or, record the accrual/ prepaid, then expense. This is more complicated and I don't believe necessary looking back. I will do this year end. Or should I be using this method every month as the invoices come in? I know it's only a couple of days difference - Looking forward to your confirmations before I go in and adjust the past year. Thank you!
Manually Changing Invoice Dates
Answers
For simplicity sake, for most companies, matching exact dates isn't a necessity. The focus should be on having the proper amount of expense in each period if possible and the right expense for the year. If each payment is roughly the same, focus on having one payment per month and twelve payments in the year. Using prepaids and accruals in your situation could get extremely cumbersome without having a significant or material impact.
In regards to changing the invoice dates, does you use your system aging to determine when to cut checks? If so, changing the invoice dates would affect when you cut checks and possibly prompt payment before or after the actual due date.
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I would add a caveat to this answer. The only time you may accrue is at your year-end, since coverage and invoice will be for the next physical period.
As Anonymous said, make sure you have the proper amount by year end amount by year-end. So if y/e is Dec and you get a bill with an additional life included, accrue that 1 additional person into next year.
Thank you both.
So adjusting FY2017 I will modify dates of invoices from 10/2016 to date (end of Q3) and make sure that the month of coverage is 1) accurately classed out to corresponding timesheets, and 2) reflected in the P&L in the correct month.
To do that I will adjust invoice dates in QB from 10/2016, and moving forward input in the correct month and modify due date to properly reflect.
I WANTED TO CONFIRM IT IS OK PER ACCOUNTING AND AUDITOR STANDARDS TO MANUALLY ADJUST THE INVOICE DATE IN ORDER TO PROPERLY REFLECT AN EXPENSE IN THE MONTH IT IS INCURRED.
I understand the answer is yes. Just keep in mind due dates.
FY end I'll do an accrual, aside from that, keep with the above.
Much appreciated. I'll go with this unless I hear otherwise about nonprofit accounting standards.
Much appreciated
Theoretically, you shouldn't go back and change a closed month, but if the only reports you made were internally, it really IMHO doesn't matter.
However, if you did make reports to others (Government, bank etc), then once you close that's it.
Year-end closes: don't close your year-end until your certain you have all your info.
There are other procedures if you closed and need to book something, but at that point talk to your auditors.
Got it thank you. Yes we did grant reporting to our funders, but nothing to banks or Government.
Ok so I will not make any adjustments to previous months - Just note the differences in $ as part of notes to financial statements?
That's fine (in the notes) as an explanation why a particular expense is out of line with budget/prior months.
Thank you so much
Last question is about moving forward. I currently have an invoice due 8/1 for August coverage.
- If I enter with invoice date of 7/15 it will show up on my July P&L - it should show on my august and I will class out per august timesheet.
Can I record the bill today with a Aug 1 date? Seems wrong. And not worth creating a prepaid for 2 weeks. Please advise.