Accrual Accounting

Overview

This document provides an overview of Accrual Accounting with regards to the following:

-   Contribution Process

-   Benefits Process

-   Exit Contrib Account

-   Payepayable Account

-   Automatic Reversals

Contributions

Example:  Fund XYZ has a year end of 30 June

If a June cycle has been processed on the system and the cycle has closed successfully, the contributions for June would have created a Fund Level Entry to the CONTRECEIVABLE account with a Transaction Date equal to 30/06.

This means that no accrual has to take place for this contribution as the system has already made provision for it in the correct Financial Period.

Example of Accounting Activity when a cycle has been processed:

Fees and Premiums 

As with Contributions, provision for the last month (June as per this example), would also have taken place when the cycle has been closed.

For Funds where there is a Cost Reserve, the following is an example of an Accounting Activity that will be generated:

For Funds where there is no Cost Reserve and the expenses/premiums per income type are deducted from the Contributions within a cycle, the following is an example of an Accounting Activity that will be generated:

Exitcontrib account 

If Contributions are received for a member after realisation, Payroll will write this contribution to an EXITCONTRIB account (member level only), so that the amount can be included in the benefit payment amount and realisation does not have to occur again.

From a fund accounting perspective these contributions are written to the CONTRECEIVABLE account (same as with Contributions above), and will be automatically accrued for if a cycle has been closed.

Benefits

Example: XYZ has a year end of 30 June and member has exited the fund 30 June.

Bonus Portfolios 

If a member has an exit date of 30 June and realisation occurred, the Fund Level Transactions will write entries to the BENPAYABLE account with a Transaction Date equal to the Exit Date (30 June as per the example). It will therefore not be necessary to manually accrue for this amount in the Financial Period.

Example of the accounting activity that will generate:

If realisation has not yet occurred, a provisional journal needs to be processed, but it must be reversed in the following financial period (refer to Automatic Reversals below).

If a Financial Period has been closed and a claim is processed with a Due Date that falls within the closed period, the Transaction Date will be equal to the 1^st of July (next Financial Period).

Unitised Portfolios 

If a member has an exit date of 30 June and realisation occurred, the Fund Level Transactions will write entries to the BENPAYABLE account with a Transaction Date equal to the Exit Date (30 June as per the example). It will therefore not be necessary to manually accrue for this amount in the Financial Period.

Example of the accounting activity that will generate:

If realisation has not yet occurred, a provisional journal needs to be processed, but it must be reversed in the following financial period (refer to Automatic Reversals below).

If a Financial Period has been closed and a claim is processed with a Due Date that falls within the closed period, the Transaction Date will be equal to the 1^st of July (next Financial Period).

Exitcontrib account 

Refer to Exitcontrib account under Contributions above.  If material enough, and there are contributions in this account that still need to be paid to a member, a provisional journal can be processed which will have to be reversed in the following financial period (refer to Automatic Reversals below).

Payepayable Account 

If a tax amount is deductable from a member’s benefit and a payment has been authorised on the system, a Fund Level entry will be credited against the PAYEPAYABLE account with a Transaction Date equal to the Exit Date (on condition that the Financial Period is still open).

The Bulk Payment Process on the system can be used to make a payment from this account to SARS.  This process will debit the PAYEPAYABLE account.

Any balance in this account is an indication that a payment to SARS has not yet occurred and thus will be a CREDITOR entry on the Financials.

Automatic reversals

If a provisional journal as at month-end or year-end needs to be processed, an indicator can be set on the Accounting Activity to automatically reverse this entry in the following month.

The accounting activity for the reversal to the original transaction will be associated to the originating accounting activity.

The automatic reversal will offset the income or expense in the new financial year otherwise the income and expense will be duplicated i.e. included in the previous financial year and in the new.

Example: Fund XYZ has a year end of 30 June and member has exited the fund 30 June.

The claim form has been received but not yet processed or realisation has not yet been processed.

Example of the accounting activity that should be processed as at 30/06/2012:

Example of the automatic reversal accounting activity that should be processed as at 01/07/2012:

Example of the accounting activity that will be processed as at 01/07/2012 by the Benefit Payments process:

The expense balance will be cleared as at 30/06/2012 when the first transaction is processed in the new financial year and the two expense transactions (BENEFITS) will offset each other in the new financial year.  The liability account balance (BENPAYABVLE), is carried forward to the new financial year and the two liability transactions will offset each other leaving the balance carried forward to be offset when the actual payment is made.

The converse applies to income and debtor transactions.