Media (pre)billing & accrual [in-depth guide]
Guide contents: Setup | Getting orders into Workamajig | Review what to bill | Prebill at | (Pre)billing media | Accruals & reversals | Closing Prebilled Order | Maintaining the media process | Month end
Most agencies will pre-bill media orders to ensure they have the funds to pay the vendor's invoices in a timely manner. To assist your tracking of an accurate AGI for the period, the pre-billing of the order will auto-create two extra lines in the posting detail of the client invoice. Along with the normal posting detail to account receivable & sales/income: you will see a section labeled Prebill accrual. This will have a CREDIT to the designated accrual/liability account and a DEBIT to COGs account as defined by the expense item billed to the client. This allows you to see the "expense" in the same period as the revenue. When the vendor invoice is reconciled with the order, the vendor invoice will have the same Prebill accrual section added to the posting details in the form of a DEBIT to the designated accrual/liability account and a CREDIT to the COGS account as defined by the expense item. Thus reversing the amount posted by the client invoice.
NOTE: Pre-billing an order to the client should NOT be confused with an advance billing invoice. An advance billing invoice is used to receive a "deposit" for future work & expenses that will be incurred. This is NOT a revenue invoice and no transactions are ever associated with this type of invoice. It will be used to offset the accounts receivable amounts on any future client invoices. In contrast, a pre-bill order invoice is used to recognize an expense at the time of client invoicing, even though a vendor invoice has not been received.
Setup
From Menu > Admin/manager > System setup > GL settings > GL tracking options > Prebilled purchase orders & media:
Specify the purchase order prebilled accrual account (liability) and the media prebilled accrual account (liability) from your GL accounts and check the box to 'accrue cost to item expense account'.
NOTE: The same accrual account can be set for both purchase orders & media orders, or different GL accounts can be used. Do NOT have any other default accounts set to use these accounts.
From Menu > Admin > System setup > Account information > Transaction preferences > click Show advanced options > Media >> Insertion orders tab & Broadcast orders tab:
- Check 'link to project' (on by default)
- Don’t check 'allow changes after client invoices' (this allows the order net/gross to be changed after it’s already been billed)
- Check 'show order adjustments as single line' (this allows the user to add just the incremental difference instead of zeroing out the entire line and replacing it with the revised amount).
Getting orders into Workamajig
Media orders can be entered in one of the following methods:
- Keyed in manually
- Imported
- Sync’d from Strata to Workamajig.
NOTE: To avoid issues with synced orders, you should not make adjustments to orders in Workamajig. Edits should be performed in Strata/Freewheel. You will then sync the changes into Workamajig where the order lines will be updated according to the changes that were made.
Review what to bill
Once media orders are in Workamajig & approved, users can run the "Media billing report" to see what can be billed.
This report is found by going to Main menu > Reports > Media > Media billing report.
Prebill at
Orders can be set to "Prebill at" 'gross', 'net', or 'commission only'. This defaults from the client setup.
- Gross is used if the agency can get a commission for the media to buy so they bill the gross amount to the client and pay the net amount to the media vendor. The difference is that they keep the commission amount.
- Net is used if the agency is passing through the cost of the media buy to the client leveraging the agency’s discount with the media vendor. Typically, the agency then bills the client for their time managing the buy or has some retainer set up to cover the media buyer/traffic’s time.
- Commission only means that the media vendor will send the bill directly to the client instead of the agency. The agency would only bill the commission amount calculated on the order to the client.
NOTE: Orders set to 'commission only' also do not have any accruals/reversal since the agency will never get a media vendor invoice for the order. They would simply close the order once the media vendor sends the bill to their client.
NOTE: The new media module will have Client billing defaults for 'media billing base' which allows the media orders to be billed based on a more complex set of options for 'gross/net' with 'plus/minus'. Essentially, this is referred to as client gross or client costing. These are just other ways that the agency negotiates with its clients as to how they will earn their media buys. The orders must be set to 'prebill at gross' for this to work.
(Pre)billing media
To bill media, go to Main menu > Billing > Mass billing > Media to select the media orders and create client invoices to send to the client. This is called prebilling in Workamajig since we are billing the amount of the order to the client before receiving the actual vendor invoice from the media vendor.
NOTE: Users can also generate electronic billing worksheets just for media orders, but this step is typically unnecessary since the media authorization signed by the client already allows the agency to go ahead and bill the client for those buys, negating the need for any additional review/approve steps.
Accruals & reversals
As part of the accounting “matching principle” of tying revenue & related costs in the same period, Workamajig will automatically create accruals & reversals based on the posting of client invoices & vendor invoices that relate to these media orders.
When you post the client invoice that contains prebilled orders, Workamajig will automatically do the following:
- Debit AR, Credit sales.
- Debit accrued cost expense account, credit prebilled accrual liability account (specified in the Control accounts screen under System setup).
| GL Accounts | Debit | Credit |
|---|---|---|
| Accounts receivable | X | |
| Sales/income | X | |
| Accrued cost: designated expense account/COGS | X | |
| Prebilled accrual liability account | X |
This allows you to run financials to show revenue but also accrued expenses in the same period.
For example:
A client invoice containing an order set to prebill at gross with $120 gross and $100 net would post to the GL:
- Debit AR for $120 and credit sales for $120 (normal client invoice posting).
- Debit accrued cost expense account for $100 and credit prebilled accrual liability for $100 (automatic accrual posting).
| GL Accounts | Debit | Credit |
|---|---|---|
| Accounts receivable | 120 | |
| Sales/income | 120 | |
| Accrued cost: designated expense account/COGS | 100 | |
| Prebilled accrual liability account | 100 |
If this was the only transaction posted to GL:
- On the Balance sheet report, they would see that they have AR for $120 that the client needs to pay and they would have $100 in prebill accrual liability that they would need to pay the media vendor. This way, the CFO can see that they can collect $120 from the client, but they need to hold some of that from the client to pay the media vendor.
- On the Corporate P&L report, they would see media sales for $120 and accrued cost expense of $100. This then gives them a gross profit of $20 for the media buy billed to the client. This is tying the revenue & cost in the same period.
A month or two later, the vendor invoice comes in for the prebilled order and you post that vendor invoice. It will do the following:
- Credit AP, debit COGS
- Credit accrued cost expense account, debit prebilled accrual liability account (reversing out the accrual from the prebilled orders).
| GL Accounts | Debit | Credit |
|---|---|---|
| Accounts payable | X | |
| Designated expense account/COGS | X | |
| Accrued cost: designated expense account/COGS | X | |
| Prebilled accrual liability account | X |
Using the same example as above, posting the vendor invoice will now post the following to GL:
- Credit the AP account for $100 and debit COGS account based on the Item ID setup for $100 (normal vendor invoice posting).
- Credit accrued cost expense account for $100 and debit prebilled accrual liability for $100 (automatic reversal posting).
| GL accounts | Debit | Credit |
|---|---|---|
| Accounts payable | 100 | |
| Designated expense account/COGS | 100 | |
| Accrued cost: designated expense account/COGS | 100 | |
| Prebilled accrual liability account | 100 |
| GL accounts | Debit | Credit |
|---|---|---|
| Client invoice | ||
| Accounts receivable | 120 | |
| Sales/income | 120 | |
| Accrued cost: designated expense account | 100 | |
| Prebilled accrual liability account | 100 | |
| Vendor invoice | ||
| Accounts payable | 100 | |
| Designated expense account/COGS | 100 | |
| Accrued cost: designated expense account/COGS | 100 | |
| Prebilled accrual liability account | 100 |
| GL accounts | Debit | Credit |
|---|---|---|
| Account receivable | 120 | |
| Sales/income | 120 | |
| Accounts payable | 100 | |
| Designated expense account/COGS | 100 |
On the Balance sheet report, this reversal is simply moving the amount from the prebilled accrual liability account to the actual AP liability account, since the actual vendor invoice is now posted.
On the Corporate P&L report, this reversal is simply moving the amount from the accrued cost expense account to the actual COGS account based on the setup of item ID used on the order.
NOTE: If you are not prebilling the media orders, then no accruals/reversals apply since they would be billing the actual vendor invoice instead of the order.
What happens when an order is prebilled, but the vendor invoice is never received or order is cancelled?
The same scenario as shown above will be used for this example with the difference of the order or order line being closed without receiving a vendor invoice from the actual vendor.
In the below scenario, an order is prebilled for the full amount and a vendor invoice is never received. If vendor invoices are received for a portion of the order amount, the closing of the order will only reverse out the remaining balance of the accrued order.
As shown above, when the client invoice that contains prebilled orders is posted, Workamajig will automatically do the following:
- Debit AR, Credit sales.
- Debit accrued cost expense account, credit prebilled accrual liability account (specified in the Control accounts screen under System setup).
| GL Accounts | Debit | Credit |
|---|---|---|
| Accounts receivable | X | |
| Sales/income | X | |
| Accrued cost: designated expense account/COGS | X | |
| Prebilled accrual liability account | X |
This allows you to run financials to show revenue but also accrued expenses in the same period.
For example:
A client invoice containing an order set to prebill at gross with $120 gross and $100 net would post to the GL:
- Debit AR for $120 and credit sales for $120 (normal client invoice posting).
- Debit accrued cost expense account for $100 and credit prebilled accrual liability for $100 (automatic accrual posting).
| GL Accounts | Debit | Credit |
|---|---|---|
| Accounts receivable | 120 | |
| Sales/income | 120 | |
| Accrued cost: designated expense account/COGS | 100 | |
| Prebilled accrual liability account | 100 |
If this was the only transaction posted to GL:
- On the Balance sheet report, they would see that they have AR for $120 that the client needs to pay and they would have $100 in prebill accrual liability that they would need to pay the media vendor. This way, the CFO can see that they can collect $120 from the client, but they need to hold some of that from the client to pay the media vendor.
- On the Corporate P&L report, they would see media sales for $120 and accrued cost expense of $100. This then gives them a gross profit of $20 for the media buy billed to the client. This is tying the revenue & cost in the same period.
What to do when the vendor invoice is never received:
From the order, click ...more>Close
NOTE: This action can also be done via Accrued Order Detail report.
This will generate the accrual reversing vendor invoice.
When a prebilled order or order line is manually closed, the COGS and accrual entries made as part of the client invoice must be reversed. To accomplish this reversal, Workamajig will automatically create a vendor invoice, with the invoice number set to the order number being closed.
Ex. PO number = PO-1001>>Vendor Invoice number = PO-1001
NOTE: If a line was closed in a previous period and a different line or order is closed in the current period, a suffix of -1, -2 will be appended accordingly.
The auto-generated vendor invoice will be for $0: AP=0, COGS=0, as it is only being generated to reverse the accrual values. The posting details of this invoice will display the same as those of a regular vendor invoice, but the values that are posted will be different.
- Credit AP, debit COGS
- Credit accrued cost expense account, debit prebilled accrual liability account (reversing out the accrual from the prebilled orders).
| GL Accounts | Debit | Credit |
|---|---|---|
| Accounts payable | X | |
| Designated expense account/COGS | X | |
| Accrued cost: designated expense account/COGS | X | |
| Prebilled accrual liability account | X |
Posting the vendor invoice will now post the following to GL:
- Credit the AP account for $0 and debit COGS account based on the Item ID setup for $0 (normal vendor invoice posting).
- Credit accrued cost expense account for $100 and debit prebilled accrual liability for $100 (automatic reversal posting).
| GL accounts | Debit | Credit |
|---|---|---|
| Accounts payable | 0 | |
| Designated expense account/COGS | 0 | |
| Accrued cost: designated expense account/COGS | 100 | |
| Prebilled accrual liability account | 100 |
| GL accounts | Debit | Credit |
|---|---|---|
| Client invoice | ||
| Accounts receivable | 120 | |
| Sales/income | 120 | |
| Accrued cost: designated expense account | 100 | |
| Prebilled accrual liability account | 100 | |
| Vendor invoice | ||
| Accounts payable | 0 | |
| Designated expense account/COGS | 0 | |
| Accrued cost: designated expense account/COGS | 100 | |
| Prebilled accrual liability account | 100 |
| GL accounts | Debit | Credit |
|---|---|---|
| Account receivable | 120 | |
| Sales/income | 120 | |
| Accounts payable | 0 | |
| Designated expense account/COGS | 0 |
On the Balance sheet report, this reversal simply moves the amount from the prebilled accrual liability account to the actual AP liability account since the actual vendor invoice is now posted.
On the Corporate P&L report, this reversal is simply moving the amount from the accrued cost expense account to the actual COGS account based on the setup of item ID used on the order.
NOTE: As the closing of an order is typically in a very different period than the income, the Corporate P&L will show a negative COGS value if run for the current period only. However, if you are looking at a date range that encompasses both the client invoice and reversal-vendor invoice posting dates, the Corp P&L will show only Income with $0 COGS.
Month end
Run the accrued order details report
This can be found by going to Main menu > Reports > AP reports > Accrued order detail.
The total accrued balance on that report will need to be tied to the Accrued liability account on the balance sheet. This report also allows users to close orders and create zero-dollar vendor invoices to reverse accruals if they didn't link the vendor invoice to the order.
Run the media detail report
This can be found by going to Main menu > Reports > Media reports > Media detail.
This report will show you the net & gross amount of the media orders with the subtotals based on the grouping options. This will show you which media vendors still haven’t sent in a vendor invoice as well as which orders still haven’t been billed to the client.
- You can use the grouping options to view by client/project/month.
- In addition to the grouping, you can also run it to see all orders (including closed) for a specific date range (usually a quarter).
The process then repeats by adding more media orders and running the media billing report to see what can be billed at the next media billing cycle.