Accurate forecasting of grants and lump sum payments can be tricky
It’s common in some industries, and particularly not-for-profit organisations, to receive income in lump sums that covers multiple periods. Incoming grants are such an example. To accurately match this income to the associated expenditure, often the lump sum is allocated to a liability account and then journaled to an income account each month. The challenge then is to make sure this is reflected correctly in your cashflow forecast.
What to do in your Accounting Software
If you don’t already have one, create a liability account for Income in Advance and then another for Income Allocated. In order to correctly manage the cashflow implications of both the receipt and the monthly journal, we need to have separate accounts. If your software allows for header accounts, you could group these 2 under a header to easily see the total remaining balance.
The Income in Advance account would normally have a GST tax code while the Income Allocated should be a non-taxable code. Record the receipt of funds against the Income in Advance account and the monthly journal to Income Allocated (with the other side being the Income account)
After the end of the financial year (or when the lump sum is fully allocated) you can enter a journal to clear these 2 accounts.
Steps to take in Calxa
First, check the Cashflow Settings for each account. The Income in Advance account should be set to a profile that reflects your expected timing of the receipt after invoice. If this is in the same month, set it to Current and 100%. Both the Income Allocated and the corresponding Income account should have a cashflow type of None – excluding them from the cashflow forecast reports.
Second, enter your budgets. In the Profit & Loss budget, enter the Income amount you will allocate each month. In the Balance Sheet budget use a shortcut to set the Income Allocated to -100% of the Income account. In the Income in Advance account, enter the lump sum(s) in the months you expect to invoice them.
That’s it! You’ll now have sensible figures in your monthly Profit and Loss type reports and in your Cashflow Forecasts.