In late 2015, an article already appeared on our blog about how our accounting package, in the meantime rebranded from “EASI Financials” to “Adfinity” provided (and still does) an answer to spreading out costs related to inbound purchase invoices. A practical example illustrated how our software is capable of spreading an insurance cost over time, even retroactively if necessary. The accounting is in fact supposed to reflect the reality as accurately as possible, and thanks to this cost spreading, the matching principle is respected. This principle is one of the basic underlying guidelines in accounting and requires the allocation of costs to the appropriate accounting period(s). The task of the accountant remains limited to mere review of the generated bookings.
Spreading of sales invoices
But the adjusting of entries performed by Adfinity goes even further! Our versatile software also provides a solution for spreading out profits associated with outbound invoices. Let’s assume that you are a supplier who has sold a series of maintenance contracts in January. These are in general charged over a longer period (e.g. One year). After sending out the invoices, the January income statement is suddenly skyrocketing and the following months there is no movement. However, these revenues are related to a (future) long-term period and not only in the invoicing month. Adfinity ensures that the profit related to each invoice is immediately placed on an interim account 49xx after invoicing. Each accounting period, the appropriate part goes to the income statement.
The only thing that must be determined in advance is the specific interim account, the start date and the appropriate duration. Additionally, one can of course create a specific spreading journal in which the chronological list of entries are collected. Once this information is cleared out, you have a powerful tool that can spread out rapidly and effectively. This tool allows complete freedom to specify a start time in the current financial year, regardless of the current accounting period. Retroactive and future spreading are hence possible. The system also stores the history carefully and will connect the following entries to the existing spreading entries.
Revenue planning
The great advantage of this distribution method is that one can perform profit planning. In other words, it becomes possible to estimate your income statement of each accounting period related to these contracts. We are very proud to offer this functionality to our customers. What do you think about this? Do you find this a useful tool?
