Bookkeeping

How to record prepayments for sales and expenses on Tyms web application

Updated 4 months ago by Praise Arannilewa

Help Center Bookkeeping How to record prepayments for sales and expenses on Tyms web application



Prepayments in sales and expenses refer to the practice of paying for goods or services in advance before they are actually delivered or consumed. These prepayments can impact a company's financial statements and accounting practices in th e following ways:

Prepaid income: Also known as unearned income, this refers to income or sales for which goods or services have not yet been provided to the customer, but payment has been received in advance. The advance payment is recorded as a liability on the balance sheet because the company owes the customer the goods or services. As the products are delivered or services are rendered, the liability decreases, and the corresponding revenue is recognized on the income statement.

For instance, if a magazine publisher receives payment for an annual subscription, they record it as unearned revenue initially and recognize a portion of it each month as they deliver the magazines.

Here is a brief guide on how to record a prepaid income on Tyms: 

  1. Record Sales for that particular income.

  2. Under the payment section in the record sales page, check the box which says “This is prepaid income”

  1. Enter the amount of months this prepaid income will be spread across.

Prepaid expenses: Prepaid expenses are costs that have been paid for but have not yet been consumed or used. They are initially recorded as assets because the company still possesses the value of the prepayment. Over time, as the expenses are incurred (e.g., rent, subscriptions), they are gradually recognized as expenses for the periods in which the value is used.

For example, if a company pays for one year of rent but has only used two months of it, the two months are recorded as expenses, while the remaining ten months are treated as assets until each subsequent month is incurred.

 

One of Tyms' functions is to ensure that these prepayments are accurately reflected in financial reports, including the balance sheet and trial balance.

Here is a brief guide on how to record prepaid expenses on Tyms: 

  1. Record expenses for this specific transaction.

  2. Under the payment section in the record sales page, check the box which says “This is a prepaid expense”

  1. Enter the number (in months) this prepaid expense will spread across.

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