Accounting & Bookkeeping & Small Business Forum

[echstudios]

I am new to this forum and this is my first post. I hope this community proves to be the excellent resource its seems to be for small businesses, as I have just started one of my own.

My company has just signed several advertising contracts which I am trying to log into Quickbooks. I am new to the program as I have just started the company, and I am having trouble logging the accounts properly. I know what needs to happen accounting wise, but I'm not sure how to achieve it in Quickbooks....at least I'm not doing it properly.

One ad contract is for 3 months, but we paid the entire balance up front, a month in advance of the ad campaign actually starting. How do I enter the amount so that $1,137 shows up as a Prepaid Asset as well as a payment from our Checking Account, yet Expense $379 each month for the next 3 months.

The other contract is the opposite of this. We entered into a year long $4,045 contract to be paid monthly, but only paid the first month plus sign up fee of $360. $335 will be paid each other month. When I enter the transaction, my Income Statement shows the entire $4,045 expensed in the first month.


Thank you so much in advance,
Nick

[stasia2003]

echstudios wrote: I am new to this forum and this is my first post. I hope this community proves to be the excellent resource its seems to be for small businesses, as I have just started one of my own.

My company has just signed several advertising contracts which I am trying to log into Quickbooks. I am new to the program as I have just started the company, and I am having trouble logging the accounts properly. I know what needs to happen accounting wise, but I'm not sure how to achieve it in Quickbooks....at least I'm not doing it properly.

One ad contract is for 3 months, but we paid the entire balance up front, a month in advance of the ad campaign actually starting. How do I enter the amount so that $1,137 shows up as a Prepaid Asset as well as a payment from our Checking Account, yet Expense $379 each month for the next 3 months.

The other contract is the opposite of this. We entered into a year long $4,045 contract to be paid monthly, but only paid the first month plus sign up fee of $360. $335 will be paid each other month. When I enter the transaction, my Income Statement shows the entire $4,045 expensed in the first month.


Thank you so much in advance,
Nick

If I'm remembering correctly what I was taught at the University, here's what you do.


When you prepay for an asset, in this case advertising, you will:

Debit: Prepaid Advertising 1137.00
Credit: Bank Account 1137.00

To record the expiration of Advertising at the end of each month as an adjusting entry:

Debit: Advertising Expense 379.00
Credit: Prepaid Advertising 379.00


For your second scenario:

Debit: Prepaid Advertising 3350.00
Debit: Advertising Expense 695.00
Credit: Bank Account 4045.00

To record the expiration of Advertising at the end of each month as an adjusting entry:

Debit: Advertising Expense 335.00
Credit: Prepaid Advertising 335.00


Now, it's been a while since I did this but I'm 95% sure that it's the correct answer. In other words, this is my final answer. Phoning a friend would be very difficult right now. I'm sure others will like to share their solutions. :D

[RobJ]

stasia2003 wrote: When you prepay for an asset, in this case advertising, you will:

Debit: Prepaid Advertising 1137.00
Credit: Bank Account 1137.00

To record the expiration of Advertising at the end of each month as an adjusting entry:

Debit: Advertising Expense 379.00
Credit: Prepaid Advertising 379.00
I agree with the first part of your solution, but I think the second part is just a matter of expensing it as paid.

echstudios wrote: The other contract is the opposite of this. We entered into a year long $4,045 contract to be paid monthly, but only paid the first month plus sign up fee of $360. $335 will be paid each other month. When I enter the transaction, my Income Statement shows the entire $4,045 expensed in the first month.
If I understand the OP's original question, the second contract is not prepaid.

First payment:
<DR> $695.00 - Advertising Expense
<CR> $695.00 - Cash/Checking

2nd thru 12th payments:
<DR> $335.00 - Advertising Expense
<CR> $335.00 - Cash/Checking

Be forewarned, I'm tired and might be misconstruing this entirely.

Rob

[stasia2003]

RobJ wrote: stasia2003 wrote: When you prepay for an asset, in this case advertising, you will:

Debit: Prepaid Advertising 1137.00
Credit: Bank Account 1137.00

To record the expiration of Advertising at the end of each month as an adjusting entry:

Debit: Advertising Expense 379.00
Credit: Prepaid Advertising 379.00
I agree with the first part of your solution, but I think the second part is just a matter of expensing it as paid.

echstudios wrote: The other contract is the opposite of this. We entered into a year long $4,045 contract to be paid monthly, but only paid the first month plus sign up fee of $360. $335 will be paid each other month. When I enter the transaction, my Income Statement shows the entire $4,045 expensed in the first month.
If I understand the OP's original question, the second contract is not prepaid.

First payment:
<DR> $695.00 - Advertising Expense
<CR> $695.00 - Cash/Checking

2nd thru 12th payments:
<DR> $335.00 - Advertising Expense
<CR> $335.00 - Cash/Checking

Be forewarned, I'm tired and might be misconstruing this entirely.

Rob

Okay gotcha! I misread the second part of the question. I thought it said that they also prepaid the $4045. That explains the 5% I wasn't sure about. Thanks. :lol:

[echstudios]

Okay... So basically I'm just using a general journal entry to move the numbers around manually. I think I'm getting this now.

See, I'm no accounting major but I know what and where these numbers need to be. However, I've never used this program before so I find that the difficult part.

So given this, its seems that general journal entries are used rather extensively in Quickbooks. For some reason I had the idea that everything would be magically done for me. I don't mind as long as the numbers are accounted for correctly.

Thanks so much for the help guys... I think I'll stick around here for a while...

-Nick

[dp1903]

I agree that with the second scenario record expense as paid and do not record an asset (intangible in this case if anything).

However, Quote: So given this, its seems that general journal entries are used rather extensively in Quickbooks. This is not a good assumption. General journal entries are used for specific purposes in QuickBooks and they are not used in either situation you have described. To use general journal entries in these situations is to risk the probability that it will mess up either your accrual or cash accounting and you will discover this down the road when you print out financial statements. Here's my advise - get a QuickBooks book that explains how to set up your accounting system with it. Without that you are flying blind without instruments, in my opinion, and you will surely crash.

Quote: One ad contract is for 3 months, but we paid the entire balance up front, a month in advance of the ad campaign actually starting. How do I enter the amount so that $1,137 shows up as a Prepaid Asset as well as a payment from our Checking Account, yet Expense $379 each month for the next 3 months.

First, you need to set up both companies you've signed contracts with as Vendors. I'm using QuickBooks Pro 2006 for the examples. Click on the Vendor Icon on the Icon Bar, or select Vendors from the Navigators list and then click the Vendors icon on the Vendors Navigation window, or choose LISTS - Vendor List from the menu bar. Enter the information for each vendor and save it.

Next, if the prepaid expense account you want to post to is not already in your chart of accounts, create it, the same goes for your checking account and expense account(s). To add accounts, press CTRL-N. The New Account dialog opens so you can begin entering information. Click the down arrow to the right of the Type box and select an account type from the drop-down list. Enter the info, the click Next to go to the next account. When you are finished, click OK.

To write a check, click the Check icon on the Icon Bar or Press CRTL-W or choose Banking | Write Checks from the menu bar. When the Write Checks window opens select the bank account you're using to write the checks. Fill out the check posting the $1,137 amount to the Prepaid account you have setup for the 3 month ad. Click Save & New to open a new blank check.

Repeat the write checks process for the other contract, $335 if that's how much the check was for to the expense account set up for this item and $360 to the expense account set up for this item.

Next, you can create a "Memorized Bill" for the recurring monthly ad charges for both contracts. Click the Bill icon on the Icon Bar or choose Vendors | Enter Bills from the menu bar. When the enter Bills Window opens fill out the info. If the bill isn't the same each month you can leave the Amount Due field blank. Otherwise enter the Amount Due there. Before you save the transaction, memorize it. Press CTRL-M or choose Edit | Memorize Bill from the menu bar. The Memorize Transaction window opens.

In the Name field use a name that describes the transaction so you don't have to rely on memory. Select the interval for this bill from the drop-down list in the How Often field. Enter the Next Date this bill is due. Select Remind Me. Select Automatically Enter to have QB enter this bill as a payable automatically without reminders. Use the Number Remaining field to specify how many times this bill must be paid. Click Ok in the Memorize Transaction window to save it, then Close in the Enter Bills window. If you don't want to enter the bill into the system for payment at this time, respond No when QB asks if you want to save the transaction.

Now the transactions have been recorded and each month QB will remind you of the next payment due and can enter it automatically into the system for payment.

Again, I advise purchasing a QuickBooks book and reading it to understand how QuickBooks handles transactions. It has its own ways of doing various tasks and general journal entries are ONLY used for specific types of transactions. Using them for anything else will mess up your books. If you have questions there is a forum I recommend below. Good luck.

http://quickbooksgroup.com/?@641.XEaIeaQcV4L@

[RobJ]

dp1903,

That's got to be one of the most thorough posts I've seen since I've been on this board. :D

Kudos! :lol:

Rob

p.s. In an attempt to insure there is no doubt as to my motive ... this is meant purely as a compliment.

[echstudios]

Wow, no kidding. Thanks so much dp1903.

Too often I find that the members of forum communities hoard their knowledge, which to me defeats the whole purpose. Thanks you so much for your excellent and thorough instruction; you have been an amazing help!

Thanks again,
Nick

[dp1903]

Thanks, and you're welcome. When I was brand new to QuickBooks, I found the forum in the link I gave you. These folks held my hand [told me how to record transactions] until I began to get the "feel" of QB. But, having a book on QB was a great help also.

[echstudios]

Okay, still a small hang up with this...

I followed your previous instructions and everything worked great. The $379 is being expensed monthly just as it should be, and the balance sheet shows the $1,137 in Prepaid Assets.

However, when the charge is actually expensed, the Prepaid Asset account is not being reduced by the same amount, which I believe it should be since the asset is technically being used up.

Also, the memorized bills for the payable contract is not showing up as a liability.

Is it possible to link these, or will I have to adjust it manually?

Thanks,
Nick

[dp1903]

For the $1,137, debit Prepaid expense at the Write Checks screen, the credit will automatically be posted to checking.

For the $379 amount to write-off monthly, there is no check to write, only an adjusting entry to make monthly to write it off. Use the General Journal Entry window for this. Choose Banking | Make General Journal Entries. Click in the Account column and then click the arrow to see a drop-down list of the chart of accounts. You want to debit your Advertising expense account set up for this and credit the Prepaid expense acct [asset]. I apologize, I stated not to use journal entries for any of the transactions, but this is the one transaction you will have to make by journal entry.

Quote: Also, the memorized bills for the payable contract is not showing up as a liability.

If the advertising company executes full performance of this contract within a relatively short time then I would agree that a liability should be recorded and it should all be expensed at once. However, if the performance is extended over 12 months I would agree with Rob that a liability should not be recorded, but you should expense it monthly as it is paid. That's my best reasoning at present in accord with my intermediate accounting book and AICPA Statement of Position 93-7, "Reporting on Advertising Costs". If you record a liability of $4045 and do not prepay, then what account other than expense would be debited?

Quote: I agree with the first part of your solution, but I think the second part is just a matter of expensing it as paid.

echstudios wrote:
The other contract is the opposite of this. We entered into a year long $4,045 contract to be paid monthly, but only paid the first month plus sign up fee of $360. $335 will be paid each other month. When I enter the transaction, my Income Statement shows the entire $4,045 expensed in the first month.


If you have set this up as a memorized transaction AND selected "Automatically Enter" in that window, then QB will automatically enter this amount monthly in accounts payable to be paid on the date you have specified. You will go to Vendors | Pay Bills. The pay bills window appears and you can select that bill to pay by clicking under the check mark on the far left column. Then enter the payment account, if necessary, payment method, if check is to be printed, and payment date of check. Click "Pay & Close" if this is the only bill to be paid at this time. Here is what is happening in QuickBooks:

On the date you have specified in the Memorize Transaction window, if you selected "Automatically Enter", QuickBooks will automatically enter the following transaction: Debit - Advertising Expense [for the 12 month contract], $335 and Credit - Accounts Payable-XYZ Company, $335.

When you go to "Pay Bills" and pay this bill, QuickBooks will Debit - Accounts Payable-XYZ Company $335 and Credit - Checking $335.

[stasia2003]

dp1903 wrote: For the $1,137, debit Prepaid expense at the Write Checks screen, the credit will automatically be posted to checking.

For the $379 amount to write-off monthly, there is no check to write, only an adjusting entry to make monthly to write it off. Use the General Journal Entry window for this. Choose Banking | Make General Journal Entries. Click in the Account column and then click the arrow to see a drop-down list of the chart of accounts. You want to debit your Advertising expense account set up for this and credit the Prepaid expense acct [asset]. I apologize, I stated not to use journal entries for any of the transactions, but this is the one transaction you will have to make by journal entry.

Quote: Also, the memorized bills for the payable contract is not showing up as a liability.

If the advertising company executes full performance of this contract within a relatively short time then I would agree that a liability should be recorded and it should all be expensed at once. However, if the performance is extended over 12 months I would agree with Rob that a liability should not be recorded, but you should expense it monthly as it is paid. That's my best reasoning at present in accord with my intermediate accounting book and AICPA Statement of Position 93-7, "Reporting on Advertising Costs". If you record a liability of $4045 and do not prepay, then what account other than expense would be debited?

Quote: I agree with the first part of your solution, but I think the second part is just a matter of expensing it as paid.

echstudios wrote:
The other contract is the opposite of this. We entered into a year long $4,045 contract to be paid monthly, but only paid the first month plus sign up fee of $360. $335 will be paid each other month. When I enter the transaction, my Income Statement shows the entire $4,045 expensed in the first month.


If you have set this up as a memorized transaction AND selected "Automatically Enter" in that window, then QB will automatically enter this amount monthly in accounts payable to be paid on the date you have specified. You will go to Vendors | Pay Bills. The pay bills window appears and you can select that bill to pay by clicking under the check mark on the far left column. Then enter the payment account, if necessary, payment method, if check is to be printed, and payment date of check. Click "Pay & Close" if this is the only bill to be paid at this time. Here is what is happening in QuickBooks:

On the date you have specified in the Memorize Transaction window, if you selected "Automatically Enter", QuickBooks will automatically enter the following transaction: Debit - Advertising Expense [for the 12 month contract], $335 and Credit - Accounts Payable-XYZ Company, $335.

When you go to "Pay Bills" and pay this bill, QuickBooks will Debit - Accounts Payable-XYZ Company $335 and Credit - Checking $335.

Be careful with your wording on the first part of your answer. You told him to "credit Prepaid Expenses[asset]". An expense is not an asset so the term asset should not have been put in brackets after Prepaid Expenses. I say this because the OP is not familiar with accounting and you don't want to confuse him.

Just say Debit the Prepaid Expenses for $379, in this case Advertising Expense, and Credit Prepaid Advertising[asset] as an adjusting entry at the end of every month.

[RobJ]

stasia2003 wrote: Be careful with your wording on the first part of your answer. You told him to "credit Prepaid Expenses[asset]". An expense is not an asset so the term asset should not have been put in brackets after Prepaid Expenses. I say this because the OP is not familiar with accounting and you don't want to confuse him.
I'm not entirely sure what you mean. I agree that using the word "expense" for an asset account may be confusing for a lay-person, but the reality is that is what it is. That said, I don't see any reason why he (the OP) can't name the account as you've suggested (Prepaid Advertising).

echstudios wrote: Also, the memorized bills for the payable contract is not showing up as a liability.

Is it possible to link these, or will I have to adjust it manually?
It won't show up. You will have to expense each payment as it is made. The mere execution of a contract, while technically creating a liability, does not in fact create a liability until the contract is performed.

I hope that makes sense,

Rob

[dp1903]

Thanks, Stasia, you are right. It could be confusing to someone not familiar with accounting. Here it is again this time with better wording:

For the $1,137, debit Prepaid advertising {a current asset} at the Write Checks screen, the credit will automatically be posted to checking.

For the $379 amount to write-off monthly, there is no check to write, only an adjusting entry to make monthly to write it off. Use the General Journal Entry window for this. Choose Banking | Make General Journal Entries. Click in the Account column and then click the arrow to see a drop-down list of the chart of accounts. You want to debit your Advertising expense account set up for this and credit Prepaid advertising [current asset]. I apologize, I stated not to use journal entries for any of the transactions, but this is the one transaction you will have to make by journal entry.

Thanks Rob, for clarifying the reason for not recording the liability on the second contract. :D

[echstudios]

Okay, that all makes sense. No worries about the confusion. As I stated earlier, I'm much more comfortable with the accounting principles side of thing than the actual software.

You all have been a very great help!

Many thanks,
Nick