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, to process the transactions follow these steps:
- Record the receipt of funds against the Income in Advance account.
- Now, process the monthly journal to debit Income in Advance and credit the revenue account.
Forecasting Income Received in Advance in Calxa
In Calxa, there are a few ways of managing Income Received in Advance but this is the clearest.
Step-by-Step Guide to Income in Advance
- 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.
- For more clarity, you could use 2 Metrics, one for Income Received, one for Income Allocated. Set the formula for Income Allocated to the income account times -1 and then enter the payments against Income Received in the months they are expected. The formula on your liability account is then the sum of the 2 metrics.
- In Cashflow Settings, Cashflow Forecast turn on the advanced settings. For both the revenue and liability account, set the cashflow settings to Profile with 100% current and set the same GST/VAT account for both of them. This will net the tax in all months to zero, except in the months you are receiving funds.
- Build an Account Tree for your Cashflow Forecast report. Create a header for the income received and set it as summary only so it 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) in the related months, not the allocation.
For the quick, visual overview, see our Video Tip on this topic.
Expanding on your Knowledge
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 at any time the timing of receipts is different to the accrual of income.