Example of Deferred Expenses Using Multiperiod Accounting

A multiperiod invoice has two accounts on the lines and distributions. The existing expense account or distribution set continues to be used to capture the account that the expenses have to be booked.

While another account is used to assign the expenses in the interim account until the entire expenditure is recognized. This account is called the multiperiod accrual account. When the invoice is accounted, the expenses are debited to the multiperiod accrual account. Later when the multiperiod accounting process is submitted, a portion of the total expenses is recognized. It is then moved from the accrual account to the actual expense account. The amount recognized depends on the number of accounting periods for which recognition has to be done and the recognition formula used in the accounting rules.

This example demonstrates how the accounting entries are created across more than one accounting period for a single accounting event.

Scenario

An invoice for a 3-month lease is entered on Jan. 10th. The total expense is 12,000 USD and covers the rental period from Jan. 1 to Mar. 31. Assuming the rental expenses are split evenly over the 3 months and the monthly accounting calendar is used. The following example displays the accounting for a single period and for multiple periods.

Multiperiod Accounting

Steps for multiperiod accounting:

1. Create an invoice. Enter the values for the multiperiod start and end dates and the multiperiod accrual account.

2. Validate the invoice.

3. Submit the accounting of the invoice in Payables or through the batch accounting program.

4. At the end of each accounting period, submit the Multiperiod Accounting Program to recognize the expenditure for the relevant accounting program.

5. View the basic accounting and multiperiod recognition entries.

The following example displays three accounting entries:

1. Basic accounting; The accounting entry based on a single period.

2. Multiperiod accounting: The accounting entries based on deferring the expense over three periods.

3. Changes to the multiperiod accounting-related attributes: The accounting entries when expanding the deferred expense to a fourth period.

Deferred Accounting Example

Basic Accounting

The following table displays the accounting for a prepaid expense for a single accounting period.

Accounting Date	Debit or Credit	Journal	Accounted Debit	Accounted Credit
Jan. 10	Debit	Prepaid Expense	12000	0
Jan. 10	Credit	Liability	0	12000

Multiperiod Accounting

The following table displays the accounting for deferring the prepaid expense for multiple periods, using multiperiod accounting.

Accounting Date	Debit or Credit	Journal	Accounted Debit	Accounted Credit
Jan. 31	Debit	Rental Expense	4000	0
Jan. 31	Credit	Prepaid Expense	0	4000
Feb. 28	Debit	Rental Expense	4000	0
Feb. 28	Credit	Prepaid Expense	0	4000
Mar. 31	Debit	Rental Expense	4000	0
Mar. 31	Credit	Prepaid Expense	0	4000

Multiperiod Accounting-Related Attributes

All three multiperiod accounting attributes can be changed on the invoice at any time until the expenses are completely recognized. However, not all changes take effect immediately. If the transaction data or the accounting method has been changed after the first recognition entry is accounted in final status, the accounting is impacted by the changes. They are reflected in future entries only and the accounted journal entries aren't affected.

For example, if you expand the multiperiod end date from Mar 31 to Apr. 30, after accounting the entry for January is complete, the future accounting entries see an adjustment. You can observe the difference in February:

Accounting Date	Debit or Credit	Journal	Accounted Debit	Accounted Credit
Feb. 28	Debit	Rental Expense	2000	0
Feb. 28	Credit	Prepaid Expense	0	2000
Mar. 31	Debit	Rental Expense	3000	0
Mar. 31	Credit	Prepaid Expense	0	3000
Apr. 30	Debit	Rental Expense	3000	0
	Credit	Prepaid Expense	0	3000