Accrual Accounting in GrowthZone

Cheri Petterson

Mar 22, 2022

2757

When setting up your Fee Items you can elect to use accrual accounting. If you are not certain which accounting methodology you are using, discuss with your accountant. Using Accrual Basis, at the fee item level, you will define, the various accounts to be used:

Income (Revenue) Account: This is the revenue account that will be credited based on your revenue recognition settings.
A/R Account: This is the asset account that represents money due to your organization and will be debited when an invoice is created. When payment is received, this account is credited. The timing of this debit is depended on the Recognition Option set for the fee item.
Deferred Revenue Account: This is a liability account to “hold” the revenue until it is to be recognized. Based on the recognition option configured for the fee item, the account will be credited when the invoice is created and debited on the appropriate recognition day.
Deposit Account: This current asset account is debited when payment is received for invoices.

These accounts will be debited and credited based on the revenue recognition type you choose. A debit is an accounting entry that either increases an asset or expense account or decreases a liability or equity account. ... A credit is an accounting entry that either increases a liability or equity account or decreases an asset or expense account. It is positioned to the right in an accounting entry.

Following are the recognition types that may be configured for your fee items.

Fully on Invoice Date

If this option is selected, when invoiced, your revenue account is credited the sale immediately and the A/R account is debited. When the invoice is paid, the A/R account is credited, and your deposit account is debited.
Example:
$1200.00 Membership Dues invoice created on 8/3

Revenue account is credited $1200.00
A/R account is debited $1200.00

Fully on Paid Date

If Fully on Paid Date is selected, revenue will be credited to your income account when the invoice is paid. The deferred income account will be credited to "hold" the revenue and the A/R account will be debited until paid date. On paid date the deferred revenue will be debited, income account will be credited, the A/R account will be credited and the deposit account will be debited.

Example:
An invoice, for $600.00, was created on 7/7. The invoice is paid on 8/3.

On 7/7:
- Deferred Revenue account is credited $600.00
- A/R account is debited $600.00
On Paid Date 8/3:
- Deferred Revenue account is debited $600.00
- A/R account is credited $600.00
- Revenue account is credited $600.00
- Deposit account is debited $600.00

Fully on Invoice Due Date

If Fully on Invoice Due Date is selected, revenue will not be credited to the assigned revenue account until the due date. The Deferred Income account will be credited to “hold” the revenue until the due date and the Deferred Income account will be debited. On the day the invoice is paid, the Deferred A/R account will be debited, and the income account will be credited to the revenue account.
Example:
Invoice for $400.00 is dated 7/27. The due date is 8/1.

On 7/27:
- Accounts Receivable debited $400.00
- Deferred Revenue credited $400.00
On Due Date (8/1)
- Accounts Receivable is credited $400.00
- Deferred Revenue is debited $400.00
A payment at any time will debit Accounts Receivable and credit the Deposit account

Fully on Event Start Date

If Fully on Event Start Date is selected, revenue will not be credited to the assigned revenue account until the day of the event. The Deferred Revenue account will be credited to “hold” the funds until the event start date and the A/R account will be debited. On the day the event starts, the Deferred A/R account will be debited, and the income will be credited to the event revenue account.
Example
Event registration invoice for $25.00 is created on 8/3. Event begins on 8/4

On 8/3
- Deferred Revenue Account is credited $25.00
- Accounts Receivable is debited $25.00
- Revenue account is credited $25.00
A payment at any time will debit Accounts Receivable and credit the Deposit account

Spread Monthly on Invoice Date

For membership dues, even though a payment may be received, up front for the entire year, you may wish to recognize revenue equally across a specific period (generally 12 months). Spread Monthly on Invoice Date allows you to spread equal portions of a payment, across a selected time frame, starting from the invoice date.
Example:
$600 Membership purchased on May 1st. Spread is set to 12 months.

On May 1st
- A/R account is debited $600.00
- Deferred Revenue account is credited $600.00
- Revenue Account is credited $50 (1/12 of $600.00)
- Deferred revenue is debited $50.00 (1/12 of $600.00)
Each month there after (for a total of 12 months)
- Revenue account is credited $50.00 (1/12 of the $600.00)
- Deferred Revenue account is debited $50.00 (1/12 of the $600.00)
A payment at any time will debit Accounts Receivable and credit the Deposit account

Spread Monthly on Payment Date

Spread Monthly on Invoice Payment Date allows you to spread equal portions of a payment across a selected time frame beginning from the date the invoice was paid.
Example
Invoice dated 6/1 for $600.00 Fee Item set for a 12-month spread

On 6/1
- Deferred Revenue account is credited $600.00
- Accounts Receivable account is debited $600.00
Invoice paid on 8/4.
- Deferred revenue is debited 1/12 of $600.00 = $50
- Revenue is credited 1/12 of $600.00 = $50.00
- A/R is credited $600.00
- Deposit Account is debited $600.00
Each month, on the day of the month the payment was initially received:
- Revenue is credited $50.00
- Deferred Revenue is debited $50.00

IMPORTANT: This option does NOT “catch up”. It will spread forward from the payment date.

Spread Monthly on Invoice Due Date

Spread Monthly on Invoice Due Date allows you to spread equal portions of the revenue from the invoice due date forward.

Example:

On 8/4
- Deferred Revenue account is credited $300.00
- Accounts Receivable account is debited $300.00
On the invoice due date (9/3), each month $25.00 will be recognized:
- Deferred Revenue account is debited $25.00
- Revenue Account is credited $25.00
A payment at any time will debit Accounts Receivable and credit the Deposit account

IMPORTANT: This option does NOT “catch up”. It will spread forward from the invoice due date.