Principles of Accrual Accounting

In cash accounting system income is recorded to the General Ledger (GL) at the time payment is received. Although this is simple, it isn’t a good way to understand what your debtors and creditors represent on your balance sheet and it can limit how you structure your tax at the end of a financial year. You may receive large payments in advance (for example prepayment for training at the start of term) which aren’t matched by expenses (like tutor wages) and look like large profits that in reality don’t exist. onCourse is not a cash accounting system and cannot be used in that way. Trying will end in tears.

onCourse works on the principle of deferred accrual accounting, which means that prepaid fees (liability) are recorded to the General Ledger at the point the invoice has been generated, irrespective of when the payment is received.

Prepaid fees

Prepaid fees (also known as Unearned income) is income received before goods are sold or a service is provided. When you enrol students, you collect the fees for the class. When the class is delivered, the income is then 'earned' by the provider. This is sometimes called deferred accrual accounting.

When an invoice is generated within onCourse, those funds are initially listed within the GL against the Pre Paid Fees (Liability account). These funds are then transferred to the income account of the GL at the commencement of the Class.

As you can see from the above diagram, the method by which onCourse determines how the unearned income is transferred across from the Pre Paid Fees (liability) account is as follows:

1. First session of class is run
2. At approximately 1am the following morning, the system will run a comparison between the amount of funds in the liability account and the amount of funds in the income account for that Class. It will also check how many hours of the overall Class have been run and how many are yet to be run
3. Based on the above comparison, onCourse automatically transfers an instalment of funds from the Pre Paid Fees account to the Income account
4. This nightly comparison will continue for the duration of the Class until all remaining funds are transferred from the Pre Paid Fees account to the Income account.

Changing classes and timetables

As you would have noted within the previous section, onCourse runs a nightly comparison of the amount of funds in the Pre Paid Fees account against the amount of funds in the Income account.

If for example you have to cancel a session within a given Class, the next time the system does an overnight check of the status, it will allow for this cancellation and transfer all remaining funds to the Income account.

Alternatively, if you have to add additional sessions to a Class, the system will adjust the nightly instalment of funds being transferred to allow for the increased number of total hours in the given Class.

Journalling options

A College may decide that they do not wish to transfer income incrementally across the duration of a given Class.

If you don’t want to use this feature within onCourse, you can easily deactivate this within the Financial Preferences in the onCourse Application.

By choosing to not assign funds from liability to income in nightly increments, the system will instead transfer all funds from the Pre Paid Fees account to the Income account the night after the first session of the Class is run.

Please note that this setting is universal, so all Classes are either assigned funds incrementally across the duration of the Class, or the funds are transferred in one installment after the first session of the Class is completed.