Expense recognition accounting flow—Contracts

The expense recognition process uses three accounts:

  • Expense accrual: the account to which to post the liability accrual.
  • Deferred expense: the account to which to post an expense amount that has been incurred but not yet consumed.
  • Recognized expense: the account to which to post an expense amount when recognizing the deferred expense.

In Contracts, data flows between these accounts based on the expense posting events, which are:

  • On expense: the GL entry is posted when the expense is first saved.
  • On recognition: the GL entry is posted when the expense is recognized.

If you are using dual-book reporting, the events will post twice—once in each expense recognition journal.

The following example shows how the data flows between accounts during the expense recognition process. Assume a R120 expense over 12 months.

Month Event Expense Accrual Deferred Expense Recognized Expense
April Save the expense Credit 120 Debit 120  
May Post the expense recognition   Credit 10 Debit 10
June Post the expense recognition   Credit 10 Debit 10
June Post PO purchase invoice for the expense*

Debit 120

(Credit 120 to AP)

    
July . . . Post the expense recognition   Credit 10 Debit 10
  Balance 0 90 30

* The Invoice/Bill process occurs outside of Contracts in the Purchasing and/or Accounts Payable applications.