My club starts its new year as of 1st January. There are some members with invoices outstanding. I was wondering if there was a way to allocate any payments received from 1/1 onwards for the previous years invoices to a “arrears” category in lieu of fees, membership etc. I can post the payment to an arrears category but how to link to the individuals account receivable.
From an accounting perspective, this would not be logical. The income recognized as a result of the sales invoices was earned in the accounting period when issued (this year). Whether it is reported then or when the money is received is determined by whether you use accrual or cash basis accounting. The members owe the club for this year’s membership, fees, etc. Receipts that come in, whether on time or late, would normally be allocated to this year’s sales invoices, which will remain unpaid until that happens. The fact that the receipt is late doesn’t change the basic fact of what sales invoice is being paid off.
You will probably want to take note of the club’s policy on late payments. Are there late payment fees? If so, Manager can handle them. (Even if not originally specified on the sales invoice, as long as the late payment fee policy was published to members, you should be on solid ground to edit a sales invoice and check that box. Then the program will add all back fees.) See https://www.manager.io/guides/10584. You may also have a policy that says all money received will be applied first to past-due invoices. If you leave the invoice number blank when allocating the receipt to Accounts receivable for the member, Manager will apply the receipt to the unpaid sales invoice with the oldest due date.
The way to look at this situation is that it is not the receipt that is in arrears. It is the sales invoice, until it is paid in full. So categorizing incoming funds as being in arrears would contradict the facts of the situation.
If you are reporting on Cash Basis I presume that all receipts after end of 2019 for 2019 membership fees need to be reported in the 2020 P&L as 2019 membership fees.
I would handle it this way:
- Rename existing Membership fees income account to “Membership Fees - 2019”.
- Create new income account “Membership Fees - 2020”. and direct all invoices for 2020 membership fees to this new account.
This way both reporting methods (Cash or Accrual) will be accurate.
Remember that once you use an account you will not be able to delete it. It is generally not wise to create accounts for limited periods.
Using “arrears” or for that matter “prepaid” is a Balance Sheet classification - nothing to do with the Profit & Loss. Besides that, the outstanding invoices only have a balance on the Accounts Receivable account, so any payments received after 1/1 will only affect those Account Receivable account balances. There is no need to create a payment arrears category.