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How to account for office rent that spans multiple periods?

By
Manuel
on 6/11/14, 2:01 AM 1,531 views

E.g. suppose I have an office rent of 6000 per month, but I have to pay 3 months in advance, one month deposit and one month agency fee. Let's say 1/january I rent the office and I assume I rent it for 1 year.

 

I assume I should do something like this:

  1. Create an an accounting entry in the miscellaneous journal with:
    1. Add 3 lines for the rent, 6000 each to account office rent, each line has a different period: january,february,march
    2. Add 1 line for the deposit to account receivable for december with 6000.
    3. Add 12 lines for agency fee, 500 each month, each line has a different month, account to office rent.
    4. Add 1 line to account payable, total 5x6000 = 30000.
  2. Then we transfer 30000 by bank, add the bankstatement and reconcile it with the accounting entry in account payable.
  3. Then every 3 months, just add a new accounting entry with only 3 lines for the rent (e.g. april,may,june) and 1 line for account payable of 3x6000.
  4. The moment we receive the deposit back in december, we enter the bankstatement and reconcile it with the accounting entry in account receivable.

I am not quite sure this is correct, both from accounting principles and from openerp principles.

I am running in the following trouble:

  1. When entering an accounting entry, I can only select one period (I have setup monthly periods). I can select different due dates though. How to do this?
  2. When trying to reconcile the bank statement, it gives an error, integrity error object with reference: account_id - account.id.
    I think it's because I didn't select a partner? So should create a partner called office owner and assign each line to this partner? Or is it common to make one partner called "Other" which I use for all office costs (equipment, consumables, rent, couriers etc.) Creating a partner for each seems quite an overhead, especially for small costs.
  3. Another way I could do this, is by letting the office manager adding an employee expense. She actually does pay it and then I give it back to her. But then I have no idea how to account over multiple periods.
  4. Another way I could do this, is by adding a purchase invoice. But that doesn't seem quite right to me, as I use purchase invoices for a suppliers that deliver goods that I actually sell.

Any help on this, greatly appreciated!

1
Kim Goodall
On 6/12/14, 2:07 AM

For me I would use the Recurring Journal Function in the accounting module

Lets just deal with Agency fees first......

Upon payment of the agency fee I would post a journal

Dr Prepaid Expenses 6000

Cr Bank 6000

Then I would build a recurring journal that recurs 12 times for each month of the year that

Cr Prepaid Expenses 500

Dr Rental - Agency Fees 500

You can do (I guess) with the FA system but its like using a sledge hammer to crack a nut.. (Sorry)

Now for the deposit - post once on the day of the payment of the rental deposit say 1 Jan 201X

Dr Other Assets - Rental Advances 6000

Cr Bank 6000

This balance will stay in your balance sheet account until the landlord refunds you the 6000 at the end of your rental period say 31 Dec 201X. Once he repays your deposit post the following entries

Cr Other Assets - Rental Advances 6000

Dr Bank 6000

Now for the three months rent in advance...

Say 1 Jan 201X

Dr Prepaid Rent   18000

Cr Bank 18000

Set up Recurring Journal that recurs monthly for the full year

Cr Prepaid Rent 6000 

Dr Rent Expense 6000

You should make a payment at the end of each month to pay 6000 to keep your Prepaid rent at three months ( i do not believe 3 months rent in advance works along the way you suggested ie on April you make another payment of 18000)

Dr Prepaid Rent 6000

Cr Bank 6000

That's it job done and all in the accounting module

QED

Kim

0
Manuel
On 6/11/14, 11:37 PM

Thank you for your -very- fast answer!

I did the following:

  1. Added the asset module.
  2. Created two assets and 1 asset category one for the agency (which I depreciate over 12 month).
    1. Asset Account: Office, Depr. Account: Office,  Depr. Expense Account: Account Payable.
      This in misc. journal. one for the 3-month rent (which I depreciate over 3 months). 
    2. Asset Account: Office, Depr. Account: Office,  Depr. Expense Account: Account Payable. 
      This in misc. journal.
  3. Then I created an accounting entry in the miscellaneous journal for the deposit:
    1. Add 1 line for the deposit to account receivable with 6000.
    2. Add 1 line for the deposit to account deposits with 6000.
      These ones I add to the december period in misc. journal.
    3. Add 1 line for the deposit to account payable with 6000.
    4. Add 1 line for the deposit to account deposits with 6000
      These ones I add to the January period  in misc. journal.
  4. Then we transfer 30000 by bank, add the bankstatement and reconcile it with the (3) accounting entries in account payable.
  5. Then every 3 month, we create a new asset, the same like step 2.2
  6. The moment we receive the deposit back in december, we enter the bankstatement and reconcile it with the accounting entry in account receivable.

Did I understand you correctly?

But I have the following trouble:

  1. I want the depreciation to be in e.g. July, August, September for the 3-month payment we make in July. By default it starts in January. So I tried Prorata Temporis, but it creates strange entries. So instead, I adjusted the periods manually which also works fine.
  2. I noticed that 3 account payables journal items are added and 3 office journal items are posted. All of them in July? Not in the different periods as I had expected? I had expected only 1 account payable in July, and 3 office journal items in July, August, September.

What do I do wrong?

0
Fekete Mihai
On 6/11/14, 2:12 AM

Hi, you can create an asset category that will depreceate that total amount on the month selected...first you record the total amount as a provision, select the asset category in invoice line, and when you calculate your asset it will record the corresponding amount on expense...

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Asked: 6/11/14, 2:01 AM
Seen: 1531 times
Last updated: 3/16/15, 8:10 AM