Changing Agency Bill Accounting Methods

Product: WinTAM Series 6 and 7

Before making a change to your agency structure or accounting setup, you should understand how TAM handles your current setup as well as how the new setup will work. This will ensure that the change will meet your expectations. Please review the Accounting Methods Overview section before making any changes to your setup, and contact Accounting Support with any questions or concerns. 

This document is divided into the following sections:

Agency-Billed Accounting Methods Overview

Each Agency-Billed Accounting Method is described below. It is important to know how your agency is set up and understand how the TAM handles each one.

Accrual

When you Accrue your income, it means you realize Commission Income when an item is invoiced (transacted) as opposed to paid by the client. When TAM’s Month-End journal entries are generated, it places all commissions due in Commission Income rather than Unearned Commissions, regardless if they are paid or not.

Example: If a New transaction for $100.00 @ 10% commission was invoiced, the following would happen via a Month-End journal entry:

Debit Accounts Receivable $100.00 (100% - gross premium)
Credit Company Payable $ 90.00 (90% - net premium)
Credit Commission Income $ 10.00 (10% - commission)

When the client pays for the item and a Cash Receipt is applied, only the Cash and Accounts Receivable accounts are affected. The Cash Receipt is not applied against the Income account because the money is already recorded there.

Cash (Modified Cash)

TAM supports both Partially and Fully paid Cash Basis accounting. The daily workflow for agencies on a Cash basis is the same as those agencies on an Accrual basis. The only difference (on TAM) when you are set up for Cash Accounting is that instead of the Month-End journal entry putting commission in your commission income account, the MJE will put the commission in an Unearned Commission account (based on what was invoiced for the month). Unearned commissions can be set up as either a Type 1 (asset), 2 (liability) or 3 (equity). Most agencies set up the Unearned Commissions as an Asset. When a Cash Receipt is applied to an item, or you take a credit invoice and apply it to a debit Invoice/Balance, TAM will know the item has been paid and will take the commission out of Unearned Commissions and move it to your Earned Commissions Account (the Earned Commissions report will verify this figure). This all happens with via a Month-End Journal Entry.

Cash - Partially Paid

Income is moved out of Unearned Commissions to Earned Commissions based on the partial payment. For example, if 50% of the premium was paid, then 50% of the commission will be moved to Earned Commissions.

Cash - Fully Paid

No commission is moved to Earned Commissions until the item is paid in full.

Note: On a Cash basis system, it is important not to leave payments on account. The payment must be applied to an invoice in order for the commission on that invoice to be transferred to Earned Commissions.

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Changing Agency Bill Accounting Method from Cash to Accrual

Follow the steps below if you currently recognize P & C income on either a partially paid or fully paid basis and wish to change to an accrual basis.

Note: In the examples below, JAN 02 is the month when the change will take place.

  1. Post December 2001. 
  2. Exit all users from WinTAM. 
  3. Change the option in System Install: 
    1. Open an MS_DOS prompt and access the TAM drive. 
    2. Type CD\TAM and press [Enter]
    3. Type SYS_INST and press [Enter].
    4. Enter the Executive User Code and Password.
    5. Choose 2 Initial TAM Setup.
    6. Choose 3 Install Month End Options
    7. Choose 2 Select Agency Bill Accrual/Cash Basis Accounting
    8. Highlight Accrue Agency Bill Income and press [Enter].
    9. Select No to changes.
    10. Select E to end back to the TAM prompt.
  4. Users can now access WinTAM.
  5. Run a Status of Accounts for the Unearned Income account for DEC01.
  6. Enter a backpost journal entry to DEC01, clearing out the Unearned Income account and offsetting the P & C income account.

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Changing Agency Bill Accounting Method from Accrual to Cash

Follow the steps below if you currently recognize P & C income on an accrual basis and wish to change to a partially or fully paid basis. This requires zeroing out all items that are in DEC01 or earlier, and using an User-Defined transaction to bring the overall client balance back. This is similar to going live, as there will be a lump sum balance. The Aged Receivable report will not reflect correct aging on these items. Customer transaction history will still provide detail.

Note: In the examples below, JAN 02 is the month when the change will take place.

  1. Confirm that Receivables are in balance by checking the A/R balancing report from Night Utilities.
  2. Decide when to stop transacting in the month of DEC01. This includes all invoicing that affects the client balance, including agency bill, broker bill, lienholder bill, finance transactions, Miscellaneous User-defined transactions, AFEs, and JNLs. Also, no cash receipts to clients, no advances and no returned premiums may be entered (in other words, nothing that will affect the balance on the accounts receivable).

    Note: Do not initiate Dec 01 Month-End procedures. The cleanup must be done prior to January 1, 2002, so that internal transactions will apply in the month of DEC01.

  3. Run an Aged Receivables report with the following criteria:
  4. Review the printed report, concentrating on the Prebill column. These are items in the future. It will be necessary to move any of these future items that have had credits or debits applied to the accounting month of DEC01. These are easy to find. For any item that has a future month, and a credit or debit applied, the item number will appear twice on the report. The original item will be in prebill; the applied item will be in the aging columns.
  5. After compiling a list of these items, call Accounting Support for the code of the day. A technician will show you how to correct the month on the original items in Support Utilities. The month on these future transactions must be revised to show a DEC01 accounting month.
  6. After correcting these items, run the Aged Receivable report again (with the previous criteria) making sure no items were missed.
  7. If necessary, correct any remaining future transactions where debits or credits have been applied.
  8. Run the Aged Receivable report to verify these items are not in Prebill.
  9. Run the Status of Accounts for the Accounts Receivable account for DEC01 with the following criteria: 

    This is the amount that will have to be zeroed. 

  10. Run another Aged Receivable report, with the following criteria: 
  11. This will list of clients and items that still have balances in DEC01 or earlier. There will also be the total amount of the balance that will need to be zeroed out. 
  12. In Accounting Setup, create a new account. Accounting Setup can be accessed through DOSTAM-UT-6 (V6.2.0 and below) or The Agency Manager for DOS-Utilities Menu-Accounting Setup (V6.3.0), or Accounting, Account Maintenance, (V7.0.0). The type of account does not matter, but the description should be Accounting Method Change.
  13. In Accounting Setup, User-Defined transaction, create a new user-defined transaction. The Code should be AMC, the Type Miscellaneous, and the Account to offset is the new Accounting Method Change account created in the previous step. 
  14. Add an AMC transaction on each client and JE between items:
    1. Access the client.
    2. Click Invoices, Add, Add a transaction.
    3. Choose a policy, transaction type is AMC.
    4. Enter the amount in the opposite of what the Aged Receivable report shows for this client. For example, if the Aged Receivable report shows 1000.00 total, enter the AMC as -1000.00.
    5. Journal entry between items, applying this amount to the items on the Aged Receivable report.

      Note: In the case where the client owing is a lienholder or broker, a policy that is broker or lienholder bill will need to be chosen as applicable.

      • For a lienholder or broker, go to the lienholder or broker and journal entry between items.
      • For a finance company, create the AMC on a client and FIN the amount over to the finance company. Then go to the finance company and journal entry between items.

      In the instance of the broker, lienholder and finance company, it may be easier to set up a client with a broker bill, agency bill, and lienholder policies. Name the client Accounting method changes. That way all of these writeoff transactions will not be on a legitimate client history. The AMC transactions should have a DEC01 accounting month.

  15. When the AMC transactions have been added, run the Aged Receivable report again with the following criteria: 

    If everything is cleared, the report will return No items meeting your criteria

  16. Run a Status of Accounts for Accounts Receivable for DEC01, with the following criteria: 

    The balance in the account should be zero. 

  17. Add a reverse AMC transaction on each client: 
    1. Access the client.  
    2. Click Invoices, Add, Add a transaction
    3. Choose a policy, transaction type is AMC. Make sure the month is DEC01.
    4. Enter the amount the Aged Receivable report showed for this client. For example, if the Aged Receivable report shows 1000.00 total, enter the AMC as 1000.00.
    5. Do not journal entry between items. This will place the balance back on the client.
  18. Run the Aged Receivable report again with the following criteria: 

    The balances should match the original balances on the client. Overall totals should match.

  19. Run the Status of Accounts for the Accounts Receivable account for DEC01 with the following criteria:

    This should match original balance. 

  20. Run the Status of Accounts for the new Accounting method changes account. This balance should be 0.
  21. Post the month of DEC01.
  22. Exit all users from WinTAM. 
  23. Change the option in System Install:
    1. Open an MS_DOS prompt and access the TAM drive. 
    2. Type CD\TAM and press [Enter]
    3. Type SYS_INST and press [Enter].
    4. Enter the Executive User Code and Password.
    5. Choose 2 Initial TAM Setup.
    6. Choose 3 Install Month End Options
    7. Choose 2 Select Agency Bill Accrual/Cash Basis Accounting
    8. Highlight either Partially Paid or Fully Paid and Enter.
    9. Select No to changes.
    10. Select E to End.
    11. Choose 5 Chart of accounts maintenance
    12. Choose 1 Enter/revise chart of accounts
    13. Create a new account for Unearned Commission. This must be a level A. The type can be 1, 2 or 3. 15. 
    14. Select E to End. 
    15. Choose 3 Enter/view required accounts
    16. Go to the Unearned Commission account and enter the new account number. 
    17. Select E to End back to the TAM prompt.
  24. Users can now access WinTAM.

Note: If an adjustment is needed on any of the items with accounting months of DEC01 or earlier, these should be reversed at original amounts and reentered at corrected amounts.

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Last Revised: February 19, 2008 02:24 PM

SWE1982