Whether you are budgeting for income received in advance or handling accruals and prepayments on the expense side, it is easy to manage in Calxa. It wants a little bit of setup, and there are a couple of ways of doing it, but you will get the results you want with minimal effort.



Accurate Forecasting of Grants and Lump Sum Payments

If you are not familiar with lump sum payments or any form of income received in advance, we can explain.

It is 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. This Fact Sheet from CPA Australia will provide some guidance for those down under.

To accurately match this income to the associated expenditure, often the lump sum is allocated to a liability account. It is later journaled to an income account each month. The challenge then is to make sure this is reflected correctly in your cashflow forecast.

The same problem arises when you prepay an expense like insurance. Here, the annual payment is allocated to an asset account for prepaid expenses and then journaled to the Insurance expense account each month.



How to Handle Income Received in Advance in your Accounting Software

If you don’t already have one, create a liability account for Income in Advance. After that, create another account 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.

The Income in Advance account would normally have a GST/VAT tax code. In return, the Income Allocated should be a non-taxable code. To process the transactions follow these steps:

  1. Record the receipt of funds against the Income in Advance account.
  2. Now, process the monthly journal to Income Allocated . Make sure to allocate the other side to the Income in Advance account.
  3. Finally, 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.


Forecasting Income Received in Advance in Calxa

In Calxa, there are a few ways of managing Income Received in Advance.

Cashflow Option 1

  1. 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. This will exclude them from the cashflow forecast reports.
  2. Second, enter your budgets. For instance, in the Profit & Loss budget, enter the Income amount you will allocate each month. On the other hand, in the Balance Sheet budget use a formula to set the Income Allocated to the Income account times -1.
  3. Lastly, 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. In the cashflow forecast, the receipt will show in the liability section in the month it is received. There will be no other related movements.


Cashflow Option 2

If you don’t want to add a new account to your accounting system for the Income Allocated, here’s another way to achieve the same effect:

  1. Budget in the income account for the amount you will allocate each month. In the liability account for Income Received in Advance, set the budget using a formula. Set this as the income account times -1. This is because the movement is the opposite direction. Now, override this formula in the months you expect to receive the income with the net of the receipt and the monthly allocation.
  2. Use an Account Tree to create a header account for the income received and set it as summary only. Meaning, this will only ever show as one line. Drag the income account onto that header and the liability account. This header line will then show the net movement (the receipt) each month, not the allocation.

With this option, you would have both accounts set to the same cashflow type,. Quite likely, this will probably be Profile and 100% current. You should also set the tax code to the same type on both accounts as well, so that the tax is offset except in the payment month.


Budget Options for Income Received in Advance

We’ve shown you 2 ways to solve this challenge. Once you understand the principles involved, it’s easy to apply them to any situation. Use these options where you accrue or prepay expenses or the timing of receipts are different to the accrual of income.