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Media Accruals FAQs |
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Q. What is a media accrual? It is the term for a G/L journal entry that accounts for the cost
of a media buy before the vendor has billed for it. If the automatically
post WIP option is enabled in Preferences, media accrual entries are
created automatically when a media A/R invoice is posted and when
the vendor's media A/P invoice is posted. Q. Why would I use media accruals? Media accrual journal entries are used to account for both the cost
and income amounts of media buys in the same accounting period. Here's
why that matters: It's important for your income statement to show
the true profit for the month's billings and costs. If you bill clients
for media in June but don't enter the media payable until July, your
income statement will show a bigger profit in June - but bigger costs
in July. The problem here is that the media's cost isn't being counted
during the same month as the media's billing. But Clients & Profits
can make automatic adjusting entries to account for the expected cost
of the media when it is billed to the client. These entries are automatically
reversed when the media's payable invoice is eventually entered. So
your income statement will accurately show the month's media profitability.
Q. Do I have to use media accruals? No, it's an optional setting. Q. Why wouldn't I use the automatic media accruals? If your agency doesn't handle a lot of media, then the media accruals
aren't that meaningful. Also, if you always enter your media payables
in the same month as you bill for them, then media accruals are redundant.
You also don't need automatic WIP accruals if you don't bill for your
media buys in advance. Q. What happens to my financial statements if I don't use automatic media accruals? If automatic WIP accruals are disabled, your media costs and billings
will be treated just like any other job cost. Your financial statements
won't show the expected cost of the media you billed in advance. Your
media A/R invoices will post to income accounts only instead of also
debiting a media accrual cost account. And when you enter media A/P
invoices, only the job cost G/L account will be debited for the media's
cost. If enabled, the automatic WIP accrual option creates several sets
of journal entries for each media billing and payable invoice. Auditing
these entries is a substantial amount of work, since there could be
many entries posted during a period. But media is typically a small
part of the job's cost entries. Accruing all job costs would add thousands
of extra accrual JEs each month, which would be very time-consuming
(not to mention labor-intensive) to audit. Q. What happens when I activate automatic media accruals? When you enable the automatically post WIP accrual JEs for media
option in Preferences, journal entries will be automatically created
when media A/R invoices are posted and when media A/P invoices are
posted. Q. How do I "turn on" automatic accruals? Automatic WIP accruals for media is started, or enabled, in Preferences:
Choose Setup > Preferences > Accounting check the automatically
post WIP accrual JEs for media option, then click Save. Before you
can start the automatic WIP accruals, you'll need to add two new G/L
accounts: a liability account for Media Accruals and a cost account
for Media Costs. Once you've added those two accounts, you'll need
to enter their account numbers in Preferences. (Choose Setup >
Preferences > G/L Accounts.) Start adding A/P "media accrual" invoices for insertion orders that
have been billed after turning on the automatic WIP accrual feature.
If the insertion order was billed prior to starting automatic WIP
accruals, then add the media invoice as a "job cost" invoice. Remember,
insertion orders that were billed prior to starting the automatic
WIP accruals didn't make accrual journal entries in the first place.
This means that no reversing entries need to be made. Q. Can I change my mind about automatic media accruals later? Yes, but it's not recommended. You can start the automatic media accruals any time during the fiscal year, but you'll need to accommodate your existing media invoices. Automatic media accruals are not retroactive, so accruals for any existing media invoice will have to be made manually (you'll probably need your CPA's help).
Q. What kind of accounts are needed for tracking media WIP accruals in Preferences? The Media Accruals account is a liability account. It is used to
account for the expected cost of the media that has been billed in
advance. The Media Costs account is a cost-of-sales (i.e., job cost)
account that tracks the expected and actual costs of media. These
default accounts are used automatically by Clients & Profits when
media invoices are posted in A/R and A/P. Without these accounts,
the automatic media WIP option can't be used. When a client's media A/R invoice is posted, the billing amount is credited to an income account. Then the expected cost of the media is debited to Media Costs and an accrual entry is credited to Media Accruals to show the agency's liability for the media's cost. (Why? Because it hasn't been billed by the vendor yet.) When the vendor's media invoice is posted, the amounts that originally updated Media Costs and Media Accruals are reversed. In addition, the media invoice also credits and debits the normal A/P and job cost G/L accounts. For example: A $10,000 print ad has been billed that costs $8,500.
When the A/R invoice is posted, $10,000 is debited to A/R and credited
to a media income account. The Media Accruals account is credited
for $8,500 to account for the liability (i.e., what you owe the vendor
when it eventually bills you). Finally, the Media Costs account is
debited for $8,500 - the expected cost of the media buy. If the income
statement is printed now, it'll show media income of $10,000 and media
cost of $8,500, which accurately calculates a gross profit of $1,500.
If the balance sheet is printed now, it'll show an $8,500 balance
in Media Accruals, indicating what you owe the vendor who hasn't yet
billed you. When the vendor's invoice is entered into A/P as a media
accrual invoice, its actual cost of $8,500 reverses the accrual entries
posted into Media Costs and Media Accruals. Once posted, the income
statement will then reflect the real, final cost of the media instead
of the expected cost from the A/R invoice. Q. What happens if the vendor's media invoice has a different amount than the insertion order? Regardless of the vendor's invoice amount, the amount that is reversed
is based on the insertion order. So even if the vendor's media invoice
is over or under the insertion order, the reversing entry will be
accurate. The difference between the order amount (from the insertion
order) and the actual cost amount (from the vendor's invoice) is reflected
in the current period's income statement, showing the true cost of
the media buy. Q. How do I add a vendor's media invoice? The User Guide has step-by-step instructions for adding media accrual
invoices on page 3-30. In addition to the regular A/R journal entries, a debit JE is created
for the media's expect cost and a credit JE is created for the media
liability. When the vendor's media invoice is posted in A/P, a credit
JE is created for media costs and a debit JE is created for the media
liability, reversing the original WIP accrual entries. In addition,
the normal journal entries created by A/P invoices are also saved
automatically. Q. How can I identify media WIP accrual entries? Media accrual journal entries are given reference numbers beginning
with WIP# followed by the invoice number. All of the media WIP entries
for a single transaction have the same invoice number, so you'll see
the WIP JEs together with the invoice's JEs. Although they can be edited like any other journal entry, media WIP
accrual entries shouldn't be changed. If needed, an entry's description
field can be edited to include a note or comment, which would appear
on audit trails and other G/L reports. Q. What reports can I print to audit the media WIP accrual account balances? A special Media WIP Analysis report shows beginning WIP balance, the period's accrual JEs, and ending WIP balance in the Media Liability account for a selected period. It is printed from Snapshots > Financials > Analysis. In addition, the Audit Trail can be used to see all transactions
in the WIP account for a date range. The audit trail can be printed
from Accounting > General Ledger then
choose File > Print G/L Reports > Audit
Trails. The G/L Reconciliation tool can also be helpful in
tracking debit and credit journal entries in the Media Accruals and
Media Costs accounts (see page 6-38 in the user guide). Q. Are automatic media accruals for print and broadcast handled differently? No, media WIP accrual entries are identical for all kinds of media
orders. Q. What happens if I add a media A/P invoice as a job cost invoice and not a media accrual? The media invoice will be treated like any other job cost invoice.
Its cost amount will debit a job cost G/L account, but won't affect
your Media Accrual or Media Cost work in progress accounts. If you'd
billed this invoice's media in advance, it means the media WIP accrual
will never be reversed - which will make your media WIP balances on
financial statements inaccurate. Q. What happens if I include media on a standard job progress/final billing? Media WIP accruals are only created when media is billed on an A/R
media billing. Any billing amounts posted from the job billing, a
progress/final billing, a multi-job billing, etc. won't affect WIP.
That's why media should be billed on media invoices and separately
from job costs. Q. Can I apply two or more A/P invoices to the same order line number? No, you shouldn't. Only apply one A/P invoice to an order line number.
This is because the reversing accrual entry would be made more than
once if you did this, causing your media accrual job cost and liability
accounts to have incorrect balances. Normally, media vendors send
A/P invoices that mirror your orders, so this isn't a problem. However,
this is something to be aware of in the rare situation where a vendor
bills you differently from your order. For example, you have a quarter
of buys on one line number and your vendor bills you monthly and sends
you three A/P invoices for this line number. Also, Canadian users
may encounter this problem when handling their GST. See the GST tech
note. hen entering media accrual A/P invoices it is very important to only
reference a given broadcast or insertion order line number once. In
fact, C&P prompts a user with a pop-up message when you have already
applied and posted a media accrual A/P invoice against a given order
line number, telling the user to add this amount as a job cost invoice
(you can reference the same order line number as many times as you
like on job cost invoices). This is common when make good amounts
come in on the following month's A/P invoice and a user tries to apply
these make good amounts against the same order line number as they
did the month before. However, C&P will not prompt you of this if
you enter the same order line number more than once on the SAME media
accrual invoice, if this is the FIRST invoice applied against this
order line number. This will cause excessive reversals when posting
this invoice. Basically, make sure those who enter A/P invoices only
reference a given order line number once on media accrual A/P invoices
at all times.
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