1. Home
  2. General Accounting
  3. Prepaid services and accounting? How do you enter it?

Prepaid services and accounting? How do you enter it?

Hi there all!

We have a bit of a quandry. We are billing our clients for services we haven't yet performed. Prepaid bulk hour services. To me this is like a loan from the client UNTIL we actually perform the service at which point we would enter the hours worked as income and deduct the hrs worked, from the total hrs prepaid.

Example: 50 bulk hours - $5000 - Jan 1st, 2008

Work done - Jan 15th - 2 hrs

I imagine that the $5000 we collected, goes onto our liability sheet as a loan. Lets call it Client Loans. Do we enter this as an asset like a bank loan then? And counter the liability side with an entry called Prepaid Hrs? Like this -

Assets:

Client Loans - $5000

Liabilities

Prepaid Services - $5000

How do we generate an invoice to show income? Do we debit the Client Loans and Prepaid Services at the same time?

We're a little bit over our heads here.

Thanks in advance...

Reply to
Louigee
Loading thread data ...

"Louigee" wrote

So far - so good.

Nope. At least I wouldn't call it a "loan" at all. Call it what it is - so that other users of the financial statements can tell what you are doing.

I'd call it "Unearned Client Revenue". It is a liability, most likely a current liability unless you have someone who is paying you for more than 12 months of services.

And counter the liability side with an entry

Well, think about this. Where did you put the money? Unless you created a separate bank account to hold those funds till you earn them, it's in your bank account. That is the debit entry.

The initial entry - in a manual format - would be to debit the bank account you deposited the customer payment to, and to credit the Unearned Customer Revenue account.

When you actually perform the services, credit your revenue account and debit the unearned customer revenue account.

In an automated accounting system, like QuickBooks, etc, you can direct the transaction to post in those accounts.

Who is it that you go to for tax and accounting help at year end? That person should be someone you consult on a regular basis.

Reply to
Paul Thomas, CPA

"es330td" wrote

In accrual accounting, income is recognized as goods or services are provided.

The receipt of the cash.

That's about it. Take a Christmas tree farmer. He's what, making sales for

6 weeks a year. The remaining ten and a half months he's spending money.
Reply to
Paul Thomas

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.