Prepayments are usually booked at regular intervals (monthly) as the service is consumed or the tool is used.
For example, $6000 is paid as an advance for AWS for six months starting January. An amount of $1000 will be booked at the end of each month for a period of six months.
Follow these steps to amortize your Virtual Card expenses:
Step 1: Mark the Expense as Prepaid.
Virtual Card Rules are automatically created for recurring expenses. These rules, after they’re approved, tell Airbase how to create a ledger entry for each recurring transaction.
To amortize an expense, you need to edit the expense’s Virtual Card Rule and mark it as a prepayment.
Follow these steps to edit a Virtual Card Rule:
- Navigate to Accounting > Virtual Card Rules > Pending Review.
- When you hover over the rule you will find Edit option, click on it.
- Select the Prepayment option.
- Edit details of the ledger entry such as the account and vendor name if necessary.
- Click Save and Approve Rule.
Once the Virtual Card Rule has been edited and approved it will move from the Pending Review tab to the Completed Review tab.
Even if amortization is enabled on a Virtual Card Rule, the user still needs to edit the ledger entry and set the contract start and end dates.
Step 2: Generate an Amortization Schedule.
The next step is to generate a schedule that Airbase can follow to book each installment in your general ledger.
- Navigate to Accounting > Ledger Entries > Pending Review.
- Find the expense you’re looking for and click on the arrow next to it.
- Airbase will automatically pick up the start date and the end date of the contract based on information provided when the expense was created. If you'd like to change this information, click on Edit.
- Click the Generate Amortized Expenses button.
- A window will slide out with the schedule of the booking and the total amount split equally for a period of time.
- Review the details and click Submit.
Periodic entries will be automatically made according to the schedule that you’ve set here.
Once you select the start and end date for the amortization schedule, Airbase will calculate the installment based on the months within the given dates. The amount will be split equally among the months that fall within the Contract Start Date and End Date.
The Edit option allows you to change the Contract Start Date and End Date alone.
Step 3: Keep Track of Remaining and Completed Entries in an Amortization Schedule.
You can keep track of all the pending entries for the prepayment by navigating to the Accounting > Ledger Entries > Pending Sync tab.
Airbase displays the details of the transaction here: monthly spend, the outstanding balance, and the transaction date.
To see the list of amortized expense entries that have been successfully booked in your general ledger, navigate to the Sync Complete tab.
Commonly Asked Questions About Prepayment in Airbase.
I use Netsuite as my GL and when I amortize an expense, there are sync issues in Airbase. How do I troubleshoot this?
You have two options in handling amortization when you use Netsuite as your GL:
1. Allow Netsuite to amortize the expenses. Airbase will make the entry for the expense in Netsuite and once synced Netsuite handle the amortization. For which you need to ensure that the expense is not set as prepayment in Airbase and Netsuite at the same time. Here are the steps to follow:
- Locate the expense by navigating to Virtual Cards > Recurring expenses.
- In the Virtual Card Rule section and click on Edit Virtual Card Rule.
- Uncheck Prepayment and click Save.
2. Allow Airbase to handle the entries.
How does Airbase handle amortization? Can I split the amount unequally?
If an expense is set as pre-paid in Airbase, you will be asked to enter the start date and end date of the contract. Airbase then splits the amount paid for the expense equally among all the months that fall within the contract period.
Once set, the amount cannot be edited and hence you cannot split the amount unequally when they sync with the GL.
Say, you paid $12000 to GitHub for a 6-month contract and set the expense as prepaid in Airbase. If the contract is from 2nd of Jan to 2nd of June, This is what the amortized expense will look like in Airbase:
The amount can only be split equally, over the number of months between the start date and the end date.
- Split by a percentage over a period of time.
- Split the amount having a different amount in the first few months and a different amount for the remaining schedule.
- Edit the amount or split it any other way in Airbase.