Overview

Deferred (or prepaid) expenses occur when businesses pay upfront for goods or services used gradually. Accurate tracking keeps financial reports clear and compliant. iVendNext automates this process. This article shows how to set up and manage deferred expenses in iVendNext, making it easy to handle advance payments and expense recognition.

What is Deferred Expense?

Deferred expense refers to costs that have been paid in advance but have not yet been consumed. Since the goods or services have not been used, these costs are recorded as assets on the balance sheet and are expensed over time as they are consumed.

Example:
If you pay $12,000 for a one-year insurance policy, you can’t expense the entire amount immediately. Instead, you recognize $1,000 each month as an insurance expense over the 12-month period. The remaining amount is recorded as a prepaid expense.

Why Use Deferred Expense in iVendNext?

1. Accurate Financial Reporting:
   Deferred expense ensures that costs are recognized in the correct accounting periods, providing a more accurate picture of your business’s financial health.

2. Compliance with Accounting Standards:
   Properly managing deferred expense is essential for compliance with accounting standards such as GAAP and IFRS.

3. Automation:
   iVendNext automates the creation of deferred expense entries, reducing the need for manual calculations and minimizing the risk of errors.

4. Efficiency:
   Automated journal entries and reporting save time and streamline your accounting processes.

Steps to Use Deferred Expense in iVendNext

Using deferred expense in iVendNext involves a few key steps, from configuring the settings to creating purchase invoices and reviewing journal entries. Here’s a step-by-step guide:

1. Configure Deferred Expense Settings

Before you can use deferred expense, you need to configure the settings in iVendNext. Here’s how:

1. Go to Home > Accounting > Accounting Masters > Accounts Settings.

2. Look for the Deferred Accounting section.

3. Configure the following settings:

• Automatically Process Deferred Accounting Entry: Enable this setting to automatically process deferred expense entries.

• Book Deferred Entries Based On: Choose between Days or Months for allocating deferred expense.

• Book Deferred Entries Via Journal Entry: Enable this option if you prefer to book deferred entries via journal entries.

• Submit Journal Entries: Enable this option to automatically submit journal entries without manual intervention.

2. Enable Deferred Expense in the Item Master

Next, you need to enable deferred expense for specific items in the Item Master. Here’s how:

1. Go to the Item Master and select the item for which you want to enable deferred expense.

2. Under the Deferred Expense section, check the Enable Deferred Expense box.

3. Select a Deferred Expense Account (preferably an asset account).

4. Specify the number of months over which the expense should be deferred.

3. Create a Purchase Invoice for Deferred Expense

Once deferred expense is enabled for an item, you can create a purchase invoice. Here’s how:

1. Go to Home > Accounting > Purchases > Purchase Invoice.

2. Create a new purchase invoice and add the deferred expense item.

3. When you save the invoice, iVendNext will credit the Deferred Expense Account instead of the expense account.

4. The system will automatically fetch the account and service start/end dates if you’ve set them in the Item Master.

4. Review Automatic Journal Entries

iVendNext automatically creates journal entries to recognize deferred expense over time. Here’s how it works:

1. At the end of each month, iVendNext will create journal entries to debit the expense account and credit the deferred expense account based on the service period.

2. If you’ve enabled Book Deferred Entries Via Journal Entry, you can review and approve the journal entries before posting.

3. If you’ve enabled Submit Journal Entries, the journal entries will be automatically submitted without manual intervention.

5. Review the Deferred Expense Report

iVendNext provides a Deferred Revenue/Expense Report that allows you to track and review deferred expense entries. Here’s how to use it:

1. Go to Home > Accounting > Reports > Deferred Revenue/Expense Report.

2. The report shows the actual and expected postings for deferred expenses at both the item and invoice levels.

3. Use the report to ensure that deferred expense is being recognized correctly and to reconcile your accounts.

Important Points to Remember

Some important points to remember when dealing with Deferred Expense are summarized below:

1. Automatic vs. Manual Processing:
   Decide whether you want to process deferred expense entries automatically or manually based on your business needs.

2. Booking Based on Days or Months:
   Choose the booking method that best suits your accounting practices. Booking based on Days is more accurate but may require more calculations.

3. Journal Entry Options:
   If you prefer more control over deferred entries, consider booking them via journal entries and enabling automatic submission.

4. Regularly Review Reports:
   Use the Deferred Revenue/Expense Report to ensure that deferred expense is being processed correctly.