TAM has the option to defer, or postpone, producer commissions. The purpose of deferred producer payables is to be able to recognize producer expense in the month the item is invoiced rather than in the month the item is paid. This way, agency commission income is not overstated for the month because the producer expense will be recognized in the same month as the agencys income.
To implement this procedure, the agency must be set up on an accrual basis (for agency bill and/or direct bill) and producers must be set up to be paid on a partially paid or fully paid basis. The agency will add an additional liability account called Deferred Producer Payables. The system will defer based on the agency commission setup. If the agency is on an accrual basis for agency bill but on cash for direct bill, it will only defer the commission for the producer on the agency bill items.
At Month-End, a journal entry will be made between Accounts Receivable (A/R), Company Payables, and Income (like it normally does for agency billed items). For direct bill (if on an accrual basis), the journal entry at Month-End will debit Direct Bill A/R and credit Direct Bill Income. When using deferred, there will also be a journal entry between deferred producer payables and producer expense (usually a credit to deferred producer payable and a debit to producer expense). As the agency billed items are paid by the customer (or paid by the company for direct bill items), the producer payable needs to reflect that the producers are owed their commissions on these paid items. So a Month-End journal entry is also made to take the money out of deferred producer payables and put it into producer payables (usually a debit to deferred producer payable and a credit to producer payables.) When a check is issued to pay the producers commissions, the check would credit cash and debit producer payables. So with this procedure, the end result is basically the same as a non-deferred scenario. The producer payable account is cleared. The deferred producer payable is cleared. The producer expense account reflects the amount that has been accrued for producers throughout the year.
An agency is set up to accrue agency billed income. Producers are paid on partially paid items. A renewal (REN) is transacted for $1000 at 30% commission in Jan97. The producer has 10% commission. The customer makes a partial payment of $400 in Jan97. So in this example:
Gross=$1000, Net Premium=$700, Agency Income=$300, Producer Commission=$100.
When the month (Jan97) is closed, the system will make the following Month-End journal entries.
|Deferred Producer Payable||100|
|Deferred Producer Payable||40|
|When the check is issued to the producer|
Follow the steps below to begin deferring producer payables. These steps assume that you are already set up on a partially paid or paid basis for producers. If you need to switch your producer payment method, refer to the Changing Producer Payment Method- Direct Bill document or the Changing Producer Payment Method- Agency Bill document.
If on version 6.3, Home Base, Options, The Agency Manager for DOS, Utilities, System Setup, Accounting Setup, Chart of Accounts Maintenance, Enter/Revise Chart of Accounts to add the accounts.
If on version 7, Utilities, Accounting, Account Maintenance, Enter/Revise Chart of Accounts to add in the accounts.
- With everyone out of TAM, access your TAM drive.
- Type CD\TAM and press [Enter] to access the TAM directory.
- Type \NETINFO and press [Enter]. A few lines will scroll to the screen, and you will return to the TAM prompt.
- Type SYS_INST and press [Enter]. A red warning displays. Answer Yes to continue.
- Enter your executive usercode and password.
- If a red print box appears, select Quit.
- Select 2-3-5-Select Deferred Producer Commissions Option and select Defer Producer Commissions. When prompted for changes, answer No.
- (E )nd out of the "Month-End Journal Entry Options" menu and select 5-3-Enter/View Required Accounts. The last account on the screen will be Deferred Producer Payables. Input the account number for the title account entered in step 1.
- (E )nd out of all menus to return to the TAM prompt.
- With everyone out of TAM, Start, Programs, Applied Systems, System Installation.
- Select Install Month-End Options.
- Select Select Deferred Producer Commission Option.
- Select Yes, defer producer commissions.
- Close out system installation.
- Select Start, Programs, Applied Systems, Utility Manager.
- Select Accounting.
- Select Account Maintenance.
- Select Enter/Revise required accounts.
- Highlight Deferred Commissions.
- Enter the Title account previously created in the Chart of Accounts.
To balance the Month-End Journal entries and the balance in the deferred accounts, run the Producer Report with various report modes.
Last Revised: April 01, 2008 11:36 AMSWE952