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Accounting for construction equipment hire

Every journal a hire by the hour posts - prepaid blocks, approved days, monthly billing, the crew, the partner.

Steps

  1. Prepaid block invoiced (e.g. 200 h × 7,000 = 1,400,000): the invoice posts as usual - Dr customer (receivables) / Cr hire revenue (Rental - equipment) and VAT. At once a second entry, Hire invoiced in advance, moves the hours not yet worked out of revenue: Dr hire revenue 1,400,000 / Cr 2330 Hire invoiced in advance. The customer owes the money; you have not yet earned it.
  2. Each approved day on a prepaid machine (e.g. 11 h): Prepaid hire earned - Dr 2330 / Cr hire revenue 77,000 (11 × 7,000), dated the day worked. After 165 hours, 1,155,000 is revenue and 245,000 is still in 2330.
  3. Hours beyond the block (owed): they are already worked, so the next block's invoice keeps them in revenue - only its remaining hours are moved to 2330. E.g. 3 h owed and a new 200 h block: 21,000 stays in revenue, 1,379,000 goes to 2330.
  4. Monthly in arrears: the invoice is raised after the work - Dr customer / Cr hire revenue (and standby on its own line). Nothing is deferred.
  5. Crew - casual: Dr 5111 Operator and crew costs / Cr accrued expenses (2100), for the working days × the day rate. Pay them later from Treasury or Expenses against accrued expenses.
  6. Crew - on payroll: Dr 5111 / Cr salaries (the payroll salaries account). The payroll run already booked their pay; this moves the hire's share of it to cost of sales, so it is not counted twice.
  7. Partner - hired in: a supplier invoice to the partner - Dr 5100 Third-party equipment hire / Cr the partner (payables), with input VAT if you chose a tax code. Co-owned: the same, to 5130 Partners' share - co-owned equipment hire.
  8. Servicing, repairs, fuel entered on the hire page are for the margin only - their bills or expenses post in Purchasing or Expenses (tag them with the asset's cost dimension).

Good to know

  • Accounts 2330 and 5130 are created the first time they are needed.
  • Why defer? Under IFRS 15 revenue is earned as the service is given - a prepaid block is a contract liability until the machine works the hours. At month-end, 2330 shows exactly the prepaid hours not yet worked (also shown as in advance on each block and in the Margin panel).
  • A block invoiced as a draft (automatic issuing switched off) is deferred when it has been issued and its next hours are approved.
  • Journal types in the ledger: Hire invoiced in advance, Prepaid hire earned, Hire crew cost.