Child pages
  • Pre-paid hours of service

This information applies to MYOB AccountRight version 19. For later versions, see our help centre.


 

 

ANSWER ID:9093

This page explains how businesses which provide services on a pre-paid basis can track the balance of customer pre-payments.

Setting up your company file to track customer pre-payments

To enable the tracking of pre-paid hours of service, you will need to set up:

  • a new Liability ledger account, and
  • two inventory items: one for tracking the pre-payments and one for recording the income.

 

1. Set up a new Liability ledger account

A customer pre-payment represents a value in sales for which the business is liable to supply the customer, so pre-payments are recorded as a liability to the company.

To create the new Liability account:

  1. Go to the Lists menu and choose Accounts.
  2. Click the Liability tab.
  3. Click New. The Account Information window appears.
  4. Enter the new account's details as shown in the following example. The account number may vary depending on your account.
  5. Click OK.
2. Set up a new item for tracking pre-payments

To enable the pre-payments to be recorded, and for automating the general ledger postings, two inventory items need to be created. These items are also used for reporting the pre-payment balances.

To set up a new item for tracking pre-payments:

  1. Go to the Lists menu and choose Items.
  2. Click New. The Item Information window appears.
  3. Set up the item as per the example shown below.
  4. Click the Selling Details tab and specify the Tax Code When Sold. Speak to your accountant or the ATO/IRD if unsure about the applicable Tax/GST Code to use.
  5. Click OK. Referring to the above example:

    • Select the I Sell This Item option only.
    • Select the new Liability account in the Income Account for Tracking Sales linked account field - this will be the account created earlier in this support note. You will receive a warning regarding the type of account selected. Click OK and disregard the message.
3. Set up a new item to record the income
  1. Go to the Lists menu and choose Items.
  2. Click New. The Item Information window is displayed.
  3. Set up the item as per the example shown below.
  4. Click the Selling Details tab and specify the Tax Code When Sold. Speak to your accountant or the ATO/IRD if unsure about the applicable Tax/GST Code to use.
  5. Click OK. Referring to the above example:
    • Select the I Sell This Item option only.
    • Select the relevant Income account in the Income Account for Tracking Sales linked account field. You may need to create this account if it doesn't already exist.

Recording the pre-payments

There are only two steps needed to record and account for pre-payments:

  1. Record the customer pre-payment
  2. Reduce the pre-payment balance
Tax/GST Codes have been left out of the sample transactions. For information on pre-payments and the GST, please contact the ATO/IRD or your accountant. 
1. Record the customer payment

Invoicing the pre-payment item will result in a credit to its linked liability account. This will represent an amount owed by the business to the customer.

In this example, we will assume a business sells piano lessons in hourly blocks, and students need to pay for 5 hours in advance. The business has set up an item named Pre-paid Lessons (hours) to record the pre-payment.

Enter and record the pre-paid hours using an Item Invoice as per the sample sale below.

The customer payment for this invoice is entered using Sales > Receive Payments as per any other invoice payment.

2. Reduce the pre-payment balance

As the customer uses their pre-paid service, the pre-paid units and its liability need to be reduced. In addition to this, the income for the service which has been provided needs to be recorded.

All this is done by recording another Item Invoice for a negative quantity of the pre-payment item, and a corresponding positive quantity for the income item.

The following window shows a sample of the transaction.

Referring to the above example:

  • The customer has used 2 of their pre-paid hours, so the balance of the pre-paid hours is reduced by selling -2 pre-payment items. This will also post a debit to the item's linked Liability account, reducing the company's liability to the customer.
  • Selling a positive quantity of the income item (in this example Hourly Piano Lessons) will record the income for the service that has been provided to the customer.

Reporting on pre-payment balances

The Sales [Item Detail] report can be used to report the units of the pre-payment owing, and the company liability.

 

To report on pre-payment balances
  1. Go to the Sales command centre and click Reports.
  2. Click to highlight the Sales Detail report (under the Item sub-heading).
  3. Click Customise.
  4. Select the pre-payment Item from the Items drop down menu.
  5. For the Sale Status, select Closed.
  6. Enter the date range to capture the Item sales for the customer.
  7. Click Display.

The window on the following page shows the Item Sales Detail report.

 

The report shows that:

  • 5 pre-paid hours were purchased on the 02/08/2011.
  • 2 hours were used and have been invoiced on the 15/08/2011.
  • There is a balance of 3 pre-paid hours resulting in a Liability of $135.00.