How Do I Setup Service Agreement Reserves?



End of Month Procedure:

POST AMORTIZATION – Company → Post Recurring Transactions

COMPARE BALANCES – Compare the ending balance of the Service Agreement Reserve report to the balance of the reserve account on the Trial Balance.

Explanation of Service Agreement Amortization:

This will explain how to handle the amortization of service agreement income. The purpose of amortizing is to make sure that income is declared when work is performed.

In a typical service agreement, payment is made upfront for work that will be performed over a period of time. If you were to receive the payment directly as income, your profit and loss statements would not be entirely accurate. You would show an initial income spike when the payment was received followed by cost spikes as the work was subsequently performed. This could lead you to believe that either your costs or income were higher in given months than they should be.

Amortization corrects this error by first accepting the payment into a liability account, because at this point you have yet to do anything to earn it. Then as work is performed on the agreement, the money is transferred out of the liability account and into an income account. This ensures that the income is declared at the same time as the cost.

Described below are the two different ways of doing service agreement amortization in ESC,

Recurring Transaction - The Recurring Transaction method moves the money at a set time regardless of when the work is done.

On Dispatch - The On Dispatch method moves the money when the zero invoice is created from the dispatch after the work is complete. This method enables you to add costs to the invoice and ensure that the cost and the income hit the income statement at the same time.


The following items need to be setup before using Service Agreement Reserve

Company → Enter Chart of Accounts

Make sure you have a Service Agreement Reserve account and desired income account set up in your chart of accounts.

Company → System Setup → System Accounts

Enter the appropriate account numbers for Agreement Reserve and Agreement Reserve Income in the System Accounts.

Company → Enter Departments

Choose the department you use for agreements and make sure the income account tied to the department is your sales account.

Sales → Enter Billing Codes

Go to Sales → Enter Billing Codes and enter the billing code that will be used when invoicing the customer for the service agreement.

Recurring Transaction Method

On each Service Agreement click the Activities button on the top and then click Reserve. You will notice that the name of the memorized transaction is auto-populated with the customer number + location number + agreement number. The transaction is inactive (it will automatically become active when an invoice is posted for the agreement) and is set as a Recurring Transaction by default. Below that you will set the Recurrence Pattern (how often and when), Range of Recurrence (when to start & stop) and Amortization Transfer Amount (how much each time). You’ll also notice that next to the “End when zero” field is the current balance in the reserve for that customer. This balance should match the Agreement Reserve Report for that customer after back loading.

Under “Range of Recurrence” the date entered in the “Start” field does NOT indicate when the transaction will post to the general journal. The posting occurs based on the date that appears in the field labeled “When posting, the next transaction will be create on”.

Once these steps are completed recurring transactions will now appear in Company → Post Recurring Transactions and should be posted monthly.

Each month the total of the Service Agreement Reserve Report should be checked against the Service Agreement Reserve account on the Trial Balance to ensure they match.

On Dispatch Method

Before using this method you will need to create the following billing codes using the values shown. Go to Sales → Enter Billing Codes to create SARES and SASALES.

Set up each service agreement as described under Service Agreements but for this method we will be adding the SARES and SASALES billing codes under the invoice tab.

In this example the service agreement is for $500 and providing service twice a year, therefore transferring $250 with each dispatch. Be sure to enter the billing codes in the order shown.

Click Activities button and select Reserve. Check Active and uncheck Recurring Transaction, since it will be done at time of dispatch instead. The Amortization transfer amount will be zero as we will be using the amounts in the SARES and SASALES billing codes on the invoice tab of the agreement.

Using the On Dispatch Method

Each month Post Schedule to Dispatch to post dispatches for visits due that month.

After the visit mark the dispatch complete.

Create an Invoice from the Dispatch. The billing codes SARES and SASALES will appear on the sales invoice and will move money from the reserve account to the sales account on the invoice. Costs can be brought over from the dispatch or added at this time so the income and costs hit the Income statement at the same time. If parts or labor are added the Price and Amount should be zeroed out so the invoice will total zero.

Each month the total of the Service Agreement Reserve Report should be checked against the Service Agreement Reserve account on the Trial Balance to ensure they match.

Showing Tech Profitability

To show profitability for techs doing maintenance calls go to Sales → Reports → Technician Sales Analysis. Click Add Filter and choose Sales Credit. That is now shown at the bottom of your list of filter options. Once this filter is added it will remain until manually removed using the Remove Filter button. Filter the report using the Sales Credit filter and entering your Sales account and Technician if desired.

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