A single bill payment made towards a tool or service is recognized in many smaller installments over the period of consumption of the contract period.
This article refers to Airbase's built-in amortization feature. This is not to be confused with native amortization modules provided by Xero or NetSuite.
Ensure that the Prepaid account is set up in Settings > Bank Accounts.
Expenses paid through ACH transfers and Check payments are amortized in two steps-
1. Enable Amortization for the bill.
To enable amortization:
- Locate the bill in Accounting > Ledger Entries > Pending Review after creating the bill.
- Click Edit.
- Check Enable Amortization and enter the Contract Start and Contract End dates.
- Click Save.
2. Generate Amortization schedule.
Once the Contract Start and Contract End dates are set and saved, click on the Generate Amortized Expenses button. This opens up a sidebar with a list of entries for each month in the contract period.
Review the details and click Submit to approve the amortized expenses. Once approved, the ledger entry is moved to Accounting > Ledger Entries > Amortized Entries.
- The Amortization schedule is calculated based on Straight-line, prorate first & last period method. The first and the last months in the Amortization schedule are prorated based on the number of days within the contract period.
- The Amortization amount cannot be edited. You can only make changes to the Contract Start and Contract End dates.
Sync Behaviour of Amortized Transactions.
There are 2 types of syncs for amortized transactions.
- Prepayment Entry: The actual payment transaction for the full amount.
- Monthly Entry: The transaction entry that reduces the prepayment balance and expenses it out over a period of time. Each amortized transaction has multiple monthly entries, one for each month of the contract period.
See how the amortized amounts are synced with the following General Ledgers-
Track Amortized Entries.
To track amortized entries in Airbase, go to Accounting > Ledger Entries > Amortized Entries. Find the bill and click on See Amortized Entries to find the amortization schedule.
A green tick will appear when the individual monthly journal entries are synced to the GL.
To view the bill entry in the General Ledger, click on the icon of your General Ledger against the Amortized Entry.
If the amortization entry fails to sync, it will come back to Ledger Entries > Pending Review with an error icon. The entry can be edited to fix any mistakes, but the Enable Amortization flag can no longer be changed.
Cancel Pending Entries.
Cancel Pending Entries option will stop all future monthly entries from being synced to the GL. However, it does not clear the monthly entries that were synced already.
Users need Manage Accounting User Permission to amortize a bill.