Recording the Transfer of Prepayments Between Business Units

This section provides an overview of transferring a prepayment (an advanced payment or on-account payment) between business units. This transfer can involve business units with VAT adjustments for prepayments or business units without the VAT adjustment. In addition, this transfer can be completed as an interunit transfer or without interunit processing.

When a prepayment is transferred between business units, the prepayment is completely reversed in the sending business unit and the prepayment is created in the receiving business unit as if it had been originally entered in the receiving business unit. For instance, if you transfer a prepayment from a business unit with a VAT adjustment to a business unit without a VAT adjustment, then:

  • The accounting entry in the sending business unit reverses the original accounting entry for the item including the VAT amount in the Output Advance with Adjustment (VAT to Adjust) account. In this accounting entry, the Accounts Receivable account is the same amount as the prepayment (merchandise amount plus VAT amount).

  • The accounting entry in the receiving business unit does not use the Output Advance with Adjustment (VAT to Adjust) account and the Accounts Receivable account does not include the VAT amount.

The examples below show all the combinations of business units with VAT adjustments and without VAT adjustments, and also interunit transfer and non-interunit transfer scenarios.

These examples have the following conditions:

  • An advance payment of 1,196.00 EUR is received. Merchandise totaling 1,000.00 EUR has a standard VAT rate is 19.6 percent (1,000.00 x 19.6 percent = 196.00).

  • The examples display the accounting entries recorded after the Receivables Update process has been run.

Before the transfer, these are the accounting entries after running the Receivables Update process in a business unit that uses VAT adjustment:

Accounting Entry Debit Credit

Cash

1,196.00

 

Accounts Receivable (AR)

 

1,196.00

Output Advance with Adjustment (VAT to Adjust)

196.00

VAT Output Final (VO)

 

196.00

Before the transfer, these are the accounting entries after running the Receivables Update process in a business unit that does not use VAT adjustment:

Accounting Entry Debit Credit

Cash

1196.00

 

Accounts Receivable (AR)

 

1,000.00

VAT Output Final (VO)

 

196.00

Transferring Between Business Units Using VAT Adjustment and no Interunit Transfer

In this example:

  • Both sending and receiving business unit use the VAT adjustment.

  • This is not an interunit transaction.

Here are the accounting entries:

  1. After the transfer, these are the accounting entries in the sending business unit to reverse the prepayment:

    Accounting Entry Debit Credit

    AR Transfer Control

    1,196.00

    Accounts Receivable (AR)

    1,196.00

     

    Output Advance with Adjustment (VAT to Adjust)

    196.00

    VAT Output Final (VO)

    196.00

     

  2. After the transfer, these are the accounting entries in the receiving business unit to record the prepayment:

    Accounting Entry Debit Credit

    AR Transfer Control

    1196.00

     

    Accounts Receivable (AR)

     

    1196.00

    VAT Output Final (VO)

     

    196.00

    Output Advance with Adjustment (VAT to Adjust)

    196.00

     

Transferring Between Business Units With Sending Business Unit Using VAT Adjustment and no Interunit Transfer

In this example:

  • The sending business unit uses the VAT adjustment.

  • The receiving business unit does not use the VAT adjustment.

  • This is not an interunit transaction.

Here are the accounting entries:

  1. After the transfer, these are the accounting entries in the sending business unit to reverse the prepayment:

    Accounting Entry Debit Credit

    AR Transfer Control

    1,196.00

    Accounts Receivable (AR)

    1,196.00

     

    Output Advance with Adjustment (VAT to Adjust)

    196.00

    VAT Output Final (VO)

    196.00

     

  2. After the transfer, these are the accounting entries in the receiving business unit to record the prepayment:

    Accounting Entry Debit Credit

    AR Transfer Control

    1196.00

     

    Accounts Receivable (AR)

     

    1,000.00

    VAT Output Final (VO)

     

    196.00

Transferring Between Business Units Without VAT Adjustment and no Interunit Transfer

In this example:

  • Both sending and receiving business unit do not use the VAT adjustment.

  • This is not an interunit transaction.

Here are the accounting entries:

  1. After the transfer, these are the accounting entries in the sending business unit to reverse the prepayment:

    Accounting Entry Debit Credit

    AR Transfer Control

    1,196.00

    Accounts Receivable (AR)

    1,000.00

     

    VAT Output Final (VO)

    196.00

     

  2. After the transfer, these are the accounting entries in the receiving business unit to record the prepayment:

    Accounting Entry Debit Credit

    AR Transfer Control

    1196.00

     

    Accounts Receivable (AR)

     

    1000.00

    VAT Output Final (VO)

     

    196.00

Transferring Between Business Units With Receiving Business Unit Using VAT Adjustment and no Interunit Transfer

In this example:

  • The sending business unit does not use the VAT adjustment.

  • The receiving business unit uses the VAT adjustment.

  • This is not an interunit transaction.

Here are the accounting entries:

  1. After the transfer, these are the accounting entries in the sending business unit to reverse the prepayment:

    Accounting Entry Debit Credit

    AR Transfer Control

    1,196.00

    Accounts Receivable (AR)

    1,000.00

     

    VAT Output Final (VO)

    196.00

     

  2. After the transfer, these are the accounting entries in the receiving business unit to record the prepayment:

    Accounting Entry Debit Credit

    AR Transfer Control

    1196.00

     

    Accounts Receivable (AR)

     

    1,196.00

    Output Advance with Adjustment (VAT to Adjust)

    196.00

     

    VAT Output Final (VO)

     

    196.00

Transferring Between Business Units With Sending Business Unit Using VAT Adjustment and Interunit Transfer

In this example:

  • The sending business unit uses the VAT adjustment.

  • The receiving business unit does not use the VAT adjustment.

  • This is an interunit transaction. Since this is interunit transfer, the system uses interunit accounts instead of control accounts.

Here are the accounting entries:

  1. After the transfer, these are the accounting entries in the sending business unit to reverse the prepayment:

    Accounting Entry Debit Credit

    Interunit

    1,196.00

    Accounts Receivable (AR)

    1,196.00

     

    Output Advance with Adjustment (VAT to Adjust)

    196.00

    VAT Output Final (VO)

    196.00

     

  2. After the transfer, these are the accounting entries in the receiving business unit to record the prepayment:

    Accounting Entry Debit Credit

    Interunit

    1196.00

     

    Accounts Receivable (AR)

     

    1,000.00

    VAT Output Final (VO)

     

    196.00

Transferring Between Business Units Without VAT Adjustment and Interunit Transfer

In this example:

  • Both sending and receiving business unit do not use the VAT adjustment.

  • This is an interunit transaction. Since this is interunit transfer, the system uses interunit accounts instead of control accounts.

Here are the accounting entries:

  1. After the transfer, these are the accounting entries in the sending business unit to reverse the prepayment:

    Accounting Entry Debit Credit

    Interunit

    1,196.00

    Accounts Receivable (AR)

    1,000.00

     

    VAT Output Final (VO)

    196.00

     

  2. After the transfer, these are the accounting entries in the receiving business unit to record the prepayment:

    Accounting Entry Debit Credit

    Interunit

    1196.00

     

    Accounts Receivable (AR)

     

    1000.00

    VAT Output Final (VO)

     

    196.00

Transferring Between Business Units Using VAT Adjustment and Interunit Transfer

In this example:

  • Both sending and receiving business unit use the VAT adjustment.

  • This is an interunit transaction. Since this is interunit transfer, the system uses interunit accounts instead of control accounts.

Here are the accounting entries:

  1. After the transfer, these are the accounting entries in the sending business unit to reverse the prepayment:

    Accounting Entry Debit Credit

    Interunit

    1,196.00

    Accounts Receivable (AR)

    1,196.00

     

    Output Advance with Adjustment (VAT to Adjust)

    196.00

    VAT Output Final (VO)

    196.00

     

  2. After the transfer, these are the accounting entries in the receiving business unit to record the prepayment:

    Accounting Entry Debit Credit

    Interunit

    1196.00

     

    Accounts Receivable (AR)

     

    1196.00

    VAT Output Final (VO)

     

    196.00

    Output Advance with Adjustment (VAT to Adjust)

    196.00

     

Transferring Between Business Units With Receiving Business Unit Using VAT Adjustment and Interunit Transfer

In this example:

  • The sending business unit does not use the VAT adjustment.

  • The receiving business unit uses the VAT adjustment.

  • This is an interunit transaction. Since this is interunit transfer, the system uses interunit accounts instead of control accounts.

Here are the accounting entries:

  1. After the transfer, these are the accounting entries in the sending business unit to reverse the prepayment:

    Accounting Entry Debit Credit

    Interunit

    1,196.00

    Accounts Receivable (AR)

    1,000.00

     

    VAT Output Final (VO)

    196.00

     

  2. After the transfer, these are the accounting entries in the receiving business unit to record the prepayment:

    Accounting Entry Debit Credit

    Interunit

    1196.00

     

    Accounts Receivable (AR)

     

    1,196.00

    Output Advance with Adjustment (VAT to Adjust)

    196.00

     

    VAT Output Final (VO)

     

    196.00