Skip to main content

Prepayment applications

Semmy Tan avatar
Written by Semmy Tan
Updated over a month ago

In Property Matrix, invoice payments that are created before the invoice date or not applied to any invoices are considered prepayments. Prepayments will have slightly different journal entries than normal payments submitted on or after the invoice date. Prepayments have the following differences:

  • In accrual accounting, the Prepayments liability account will be credited instead of Accounts Receivable.

  • In cash accounting, the Prepaid Income income account will be credited instead of the income account on the invoice.

A "prepayment application" transaction type is then generated on the date of the applied invoice. The prepayment application simply moves the funds from the temporary prepayment account back to the original intended account.

  • In accrual accounting, the Prepayments liability account will be debited and Accounts Receivable will be credited.

  • In cash accounting, the Prepaid Income income account will be debited and the income account on the invoice will be credited.

This is the accounting impact that is most commonly desired and is how Property Matrix works by default. In accrual accounting, the prepayment will be a liability instead of a negative asset until the date it is applied. In cash accounting, the invoice income account will not be increased until the invoice date, allowing reports to show the invoice income on each invoice date instead of on the payment date.

If prepayments are treated the same way as normal payments, accounting reports can show skewed balances. Consider the following example:

A tenant submits a large prepayment in December 2024 for the next 6 months of rent for January 2025 through June 2025. If this prepayment was treated as a normal payment:

  • In accrual accounting, there will be a large negative asset balance in Accounts Receivable in December 2024, which could lead to a negative net asset balance for the owner company's balances if they only have a single rental property. No liability accounts are affected.

  • In cash accounting, there will be 7 months of rent income received in December 2024 (December 2024 plus the next 6 months). When running reports for rent income received, the year 2024 will have 18 months of rent income while 2025 will have 6 months of rent income. Monthly rent income reporting will also show 7 months of rent income in December 2024 and no rent income at all for January through June 2025.

If this is the functionality that you want, there is a setting that can be enabled. Go to the Settings page, click on General Settings on the left, and click the 3-dot menu for Advanced Settings to edit it. Then find the setting for Set Prepayment Application Date to Payment Date and enable it. This will change prepayment application dates to be on the payment date instead of the invoice date, which effectively causes the prepayment to have the same accounting impact as a normal payment on the payment date. Note that changing this setting will not update the dates of existing prepayment applications, and will only change the date for prepayment applications created going forward.

Did this answer your question?