Beginning Balances, Payments, Adjustments

An investor may have a balance for a variety of reasons. Before determining how to enter a beginning balance or adjustment you will need to know why the owner has a balance so that you can best determine how to enter it.
Due to the flexibility in SherWare a number of factors will affect how your balances are tracked. It may take some thought the first time you look at this to determine which options best fit your situation. Once you go through this once it is common that almost all of your owners will have the same situation. SherWare Support can help you work through this if needed.

Setup Options That Can Affect How Balances Are Managed:
- Net Interest or JIB Interest
- Groups
- Programs
- Authorization for Expenditure (AFE)
- Expense Codes

Windows To Manage Beginning Balances/Adjustments/Prepayments:
- Net Interests
--- Suspense Beginning Balances/Adjustments
--- Receive Owner Net Payments
- Net Prepayments
- JIB Interests
--- JIB Beginning Balances
--- Receive Owner JIB Payments
--- Journal Entries
--- Receive Customer Payments
--- Sales/Invoicing
--- Receive Owner JIB Payments
- JIB Prepayments
- AFE Prepayments
--- Receiving a Payment ("Allocate Expenses to Owners" is NOT marked)
--- Receiving a Payment ("Allocate Expenses to Owners" is marked)

Setup Options That Can Affect How Balances Are Managed:
Interests (Net Interest or JIB Interest):
You have the option to net revenue and expenses together for a netted check (Net interest) or separate them so that an investor receives both a check for all revenue and a bill for all expenses (Joint-Interest Billing). Net interests are much more efficient, but sometimes frowned upon by the old-timers in the industry as Joint-Interest Billing was used from the beginning. We typically see Net interests used in the Eastern states of OH, PA, WV, IL and in newer operations while Joint Interest Billing is common in the Western states of TX, OK, KS, and AL.
The Net/JIB option is determined at the interest level so you can take advantage of both as needed. If you don't have a preference then we recommend using all net interests as long as no other lease agreements specify otherwise. If you have one owner, well, or group of investors that would prefer JIB interests, then you can apply that processing to just them if needed. Use any combination that is needed, but it can be a little easier on you if all interests are setup universally as one or the other.
The balances for Net Interests are tracked as suspense while JIB Interests balances are tracked with the JIB processing which works like an invoicing program. It actually uses the same invoicing processing that is used in our Accounting Manager. The suspense processing has a lot more flexibility than the JIB processing.


Groups:
Each well is associated with a group. All processing is then completed at the group level. When you complete a distribution/billing you will process all wells within the selected group.

Net Interests/Suspense:
When netting the revenue and expenses together on the revenue run closing you have the option to net Deficits within each group. The setting is determined at the group level so you can have it setup differently for each group if needed.
When netting deficits any investors that have an interest in multiple wells will essentially have one overall balance for all of the wells. If one well has more expenses than revenue, the balances will be netted together and the deficit will be covered by revenue in other wells.
If you choose not to net deficits within the group, then the balance for each well will be tracked separately. If one well has a deficit, the software will carry that deficit until the investor pays it, or until the same well earns enough revenue to cover the deficit. This option can result in a number of balances and depending on the situation this may be confusing.

JIB Interests/JIB:
The JIB Processing will also create balances by group when the JIB run is closed. However, in the DMIE software these balances are added to QuickBooks as invoices. QuickBooks then does not allow us to pull these balances back by group. The Owner JIB Statement will show just the total activity for this run, but the overall ending balance will include the JIB Balance for all groups.


Programs:
Each interest can be associated with a program. Typically a Program will represent a group of interests that are somehow related. This will usually be the case for partnerships or a group of wells that are invested in at the same time. The only effect that you will see in the software is that the owner distribution statement will be grouped by program which is just a different way of sorting the information on the report. It will list all interests within the same program, provide a subtotal for this program, and then list the next program.

Net Interests/Suspense:
You have the option to net deficits with income outside of program. If this is marked any deficits within the program can be netted with revenue outside of the program as long as the setting at the group level is also marked. If this is not marked, then deficits will only be netted with wells that are in the same program.
This option is setup at the program level so can be different for each program.

JIB Interests/JIB:
The JIB Processing will group interests in the same program on the Joint Interest Billing statement. Other than this grouping, programs will not affect anything else in the JIB processing.


Authorization for Expenditure (AFE):
The AFE processing allows you to setup an estimated list of expenses and associated costs and then track the actual costs as they come in against the estimates. This is a separate module from the normal distribution processing. In the classic sense, AFEs expenses should not be included in or reported with the normal distribution processing. However, it is now very common for people to again include these expenses on the distribution reporting for a variety of reasons. We give you the flexibility to handle this either way. The setting that determines this is the "Allocate Expenses to Owners" option in the AFE Preferences. If this option is left unmarked, then AFE expenses will not affect the distribution. If this option is marked, then AFE expenses will also be processed on the distribution.
While the flexibility is great, this creates a number of different scenarios that need to be considered when setting up or managing the investor balances.

Not Allocating Expenses to Owners:
If the "Allocate Expenses to Owners" option is not marked then SherWare will display the overall estimated costs and actual amounts that have taken place on the AFE reporting only. These expenses will not affect the normal distribution processing. This is the original intent of the AFE processing. Assuming all investors paid the amount of the cash call, the AFE reporting will correctly display the balance remaining both by well and by owner. Since these expenses will not affect the normal distribution the AFE Detail report and an updated Owner Presentation report can be sent out monthly or at whatever frequency is needed for your situation.
AM/DMIE users will be required to select an account every time they enter an AFE expense. All of the initial AFE Prepayments can be posted to either a generic AFE Prepayment account or an account specific to this AFE. Then as the expenses come in you can choose this same account and it will offset the balance of the prepayments. Once the AFE is completed any variances between the original estimates and actuals can be manually refunded to the investors or you can send out an updated Owner AFE Presentation report as an invoice so they know to pay the difference.

Allocating Expenses to Owners:
When the "Allocate Expenses to Owners" option is marked, then all AFE expenses will report on both the AFE and on the normal distribution processing. This is helpful if you are not receiving prepayments for the AFE, or if you want the detail of every AFE expense to also be displayed on the owner distribution statement. This is not the classical approach to an AFE but is very common as we have found people taking advantage of this processing for a variety of situations.

If no prepayments are received, then the AFE processing is just some additional reporting that can be used either internally or to simply gain approval from investors for a project that will be taking place while each expense will be billed out on the normal distribution as it occurs.

Prepayments when "Allocating Expenses to Owners" for Net Interests:
When the "Allocate Expenses to Owners" option is marked and you receive prepayments, it is important to make sure the prepayments are handled properly or you will end up charging the prepaid expenses out again. Since the expenses will be allocated with the normal distribution processing, then you will need to give each interest a credit suspense or JIB balance.
For Net Interests, a suspense adjustment will need to be made to credit the owner for the prepayment. You will also need to put the interest on hold until the payment is used up so that it doesn't send the balance back to the investor. Once the AFE is completed you can take the interest off of hold and any variances will be refunded. The refunded amount will be subject to the program and group settings so it is possible that it will automatically be applied to other balances if they exist. If the initial estimates were under the actual charges then you can create another AFE, update the existing one, or simply take the interest off of hold and it will bill any remaining expenses out as they occur on each distribution.

Prepayments when "Allocating Expenses to Owners" for JIB Interests:
You have two options to apply balances for JIB Interests. You can either create a credit for the JIB balance or use the "Owner Prepayments" window to receive the payment.
To apply a credit to the JIB Balance: DM users will do this with the JIB Beginning Balances window. DMIE users can make a journal entry in QB to hit the JIB receivable account. AM users can use the sales/invoicing window to create a credit for the owner. This credit will be a general credit and will be applied loosely to expenses from any well. This is ok if the owner only has one interest, but will not work if the prepayment needs to affect only a specific well.
If the prepayment should only be applied towards a specific well then the prepayment needs to be entered on the Receive Owner Prepayments window. This will allow you to associate the payment to a well. Only expenses from the selected well will use up the prepayment balance.


Expense Codes:
Two settings on the expense Codes window can affect how owner balances are impacted. The "AFE Code" option and the "JIB Only" option.

AFE Code
When expenses are marked as AFE Codes they will be able to be used on the AFE Reporting. When marked, you will need to refer to the section in the AFE Preferences that talk about how AFE Expenses are handled. You will have the option to process them with the normal distribution or keep them separate from it. When marked, the option in the AFE Preference will determine how this might affect your balances.

Expense Codes: JIB Only
The JIB Only option allows you to flag an expense so that it will always process on the JIB Closing. This only affects things if it is being allocated to Net Interests. JIB Interests are already being processed on the JIB run, so this option should never be marked if all of your interests are setup as JIB Interests because everything will already be processing on the JIB Closing. When marked, any time this expense is applied to a well it will be excluded from the Revenue Run Closing and a separate JIB Run closing will need to be processed in order for these expenses to be billed out to the investors. They will then be billed on a JIB Statement instead of netted from the check on the Owner Distribution Statement.

This option is seldom used except for a few rare situations. If you think you need to mark it, please discuss the situation with SherWare support first so that you don't end up with extra work that could be unnecessary.
When marked, this expense will be billed out to the investor using the JIB Processing. Refer to the JIB Interest section to see how these balances will be handled.

Optional AFE Processing for Net Interests:
This JIB Only feature could be used with the AFE Processing to give you another option with reporting and tracking the AFE Balance. This will only work if the affected interests are setup as Net Interests and you don't want the AFE expenses to be included on the Owner Distribution Statement with other normal well activity.
The AFE Preference would need to be setup so that AFE Expenses are allocated to the Owners. Then each AFE Expense will need to have both the AFE Code and JIB Only Options marked for them. You will then have to process a JIB Closing for the AFE expenses. Since all the AFE expenses are also marked as JIB Only, it will only contain the AFE expenses. This will give you an additional report, the JIB Statement, which can be used to report on the AFE detail. You can then use any of the JIB Interest methods to track and report on the AFE Balances which will allow you to track the actual balance even if the investor didn't pay the same amount as was reported on the Cash Call. This AFE/JIB balance will be separate from any suspense balances for the normal operating activity.


Windows To Manage Beginning Balances/Adjustments/Prepayments:
Net Interests:
The balances for Net Interests are tracked with suspense. The only two windows that affect the suspense balances are the "Suspense Beginning Balances/Adjustments" and "Receive Owner Net Payments" windows.

Suspense Beginning Balances/Adjustments:
This is the recommended window to use for all beginning balances, adjustments, and prepayments as it allows you to specify the most detail. The number of fields may seem a little intimidating at first, but you can follow along in the help file as you go field by field with the data entry.

  • The entry made here will be associated with the last closed run. If this is an adjustment, it will then affect what appeared to be the ending balance for the last closed run. If you are just starting to use the software then you can have SherWare Support plug in a fake run to act as a placeholder for these adjustments before starting on them.
  • Each entry made here will be displayed as one line on the suspense report.
  • If the owner already has a suspense balance, then the Type of Suspense should correspond with the same type of suspense as the current balance is. If you are not netting between wells or programs then be sure to use the type of suspense that is reported for the balance that this adjustment will affect. To see what this is, you can look at the suspense report and refer to the "Susp Type" column.
  • Ideally you will make one adjustment for every interest that needs affected. If you are not concerned with the detail then you could just create one adjustment for each Owner as long as you are netting deficits between wells and programs. The detail of the suspense balances will not be accurate, but the overall owner balance will. Be sure to think through this and maybe consult with your accountant before skipping out on any of the detailed entries. It may save you some time but will not provide as thorough reporting on these adjustments.
  • If the corresponding interest is associated with a program then you need to be sure to specify the program here as well. This can be extremely important if you are not netting between wells or programs.
  • This window will not post anything for AM and DMIE users. You will need to make a journal entry so the proper accounts are affected.
  • The software is designed to distribute any positive balances back to the investors. If this adjustment is representing a prepayment or anything that will create a positive balance for the investor, it will be distributed back to them on the next run closing unless you mark either the owner or the interest as on hold. Placing one of these on hold will allow the software to hold the balance until the expected expenses come in. Once either the balance is used up or all of the expected expenses have come in then you can take the owner or interest off of hold.

Receive Owner Net Payments:
This is typically the most used window for suspense prepayments and adjustments because it appears easy. You simply enter the payment and save. However, this does not provide any of the detail that can be taken advantage of on the Suspense Beginning Balances/Adjustments window.

  • The entry made here will be associated with the last closed run. It will affect what appeared to be the ending balance for the last closed run. If you are just starting to use the software then you can have SherWare Support plug in a fake run to act as a placeholder for these adjustments before starting on them.
  • Do not open a closed revenue run if payments have been entered since it was closed. You will get a warning message if you try to do so.
  • If you are not netting deficits between wells or programs then be sure to properly assign the amount of the payment that should be applied to each of the wells.
  • When looking at the suspense report you will be able to see which lines represent payments by looking at the Year/Period Column. Payments do not have a year/period associated with them so will have a blank listed here for lines that represent a payment.
  • The software is designed to distribute any positive balances back to the investors. If this adjustment is representing a prepayment or anything that will create a positive balance for the investor, it will be distributed back to them on the next run closing unless you mark either the owner or the interest as on hold. Placing one of these on hold will allow the software to hold the balance until the expected expenses come in. Once either the balance is used up or all of the expected expenses have come in then you can take the owner or interest off of hold.
  • When receiving a payment, it is assumed that the owner has a deficit balance that is being paid. Since we are paying a deficit, the payment will post to the deficit account. If the interest is actually in legal suspense, then that means the payment would have posted incorrectly. You will need to make a journal entry to move the balance of the payment from the deficit account to the legal suspense account. Another option would be to just mark the Don't Post option, then make a journal entry to represent the payment.


Net Prepayments:
Prepayments can be entered on either the suspense beginning balances/adjustments window or the Receive Owner Net Payments window.
The software is designed to distribute any positive balances back to the investors. When creating a prepayment or anything that will create a positive balance for the investor, it will be distributed back to them on the next run closing unless you mark either the owner or the interest as on hold. Be sure to place either the interest or owner on hold. Placing one of these on hold will allow the software to hold the balance until the expected expenses come in. Once either the balance is used up or all of the expected expenses have come in then you can take the owner or interest off of hold. You will have to watch the balance each run until this happens.


JIB Interests:
JIB Balances allow you to bill investors for all expenses while keeping them separate from any revenue that came in. While this is common in certain areas of the country, many people are netting the revenue and expenses together so do not need the JIB processing. If that is the case for you, then you can skip this part. JIB Interests are not as easy to explain since they are handled differently in all three programs. This explanation will look lengthy, but once you narrow it down to your program it will not be a lot easier to grasp.


Sales/Invoicing:
AM Users will manage the JIB Balances with the Sales/Invoicing window. When saving the invoice, the software will recognize that the selected Customer is a JIB Interest and will ask if this should affect the JIB Balance. Choosing yes will save it into the JIB receivable processing instead of the normal A/R processing. Only one balance is tracked for each investor. If you need to track the balance by well or any other criteria then you can setup the investor multiple times on the owner information window, each with a unique owner ID. You can view the JIB Invoices and Payments report under the owner reports menu to view/audit the JIB Receivable activity. A few of the normal A.R reports also have an option to include JIB Owners on them as well.

Receive Owner JIB Payments:
JIB Payments from customers will be entered on the Receive Owner JIB Payments window. This window can also be used to manipulate JIB balances.


JIB Prepayments:
Prepayments for JIB Balances can be tracked the same way within SherWare for all three programs. This processing allows you to apply a prepayment to a specific interest, instead of having it be used up by any interest that the owner has. This processing only applies to JIB interests and not net interests.

  • One check can be applied to multiple wells. Just break it down and enter one line for each well that needs affected.
  • One check can also be applied to different effective dates for the same well. Enter a separate line for each effective date.
  • Each time a JIB Run is closed it will add a used ("U") record to the window so that you can see how much of the prepayment has been applied and how much is remaining.
  • If a balance needs refunded you will simply click on the "Refund Balance" button. This will create a used ("U") record that will zero out the balance remaining and will create a check for the amount of the adjustment.
  • If a balance needs transferred to a different well, you will need to refund the balance, then create a new prepayment for the new well. This process will create a check, you can think of it as you sending them a check, then them sending one back to you for another prepayment. Initially that is what it will look like on the accounting side. Since that is not what actually took place, you can make adjustments to the posting afterwards to make it appear the way you would like it to.


AFE Prepayments:
In addition to all of the balance tracking capabilities already mentioned, the AFE processing gives you one more differentiation to consider. You will need to determine if you want the AFE expenses to appear on only the AFE reports or if you want to include them on both the AFE reporting and the normal distribution reporting.
By default, AFE expenses are reported only on the AFE reporting. This requires any AFE balances to be tracked separate from the normal distribution balances that were discussed above.
Many users don't use the AFE processing with the classical AFE approach and do want the AFE expenses to also show up on the Distribution statements. Because of this, we give you the option to allocate AFE expenses to owners on the distribution, or keeping them separate. This option will only be a factor if you have out AFE Module.
The prepayments made for the AFE will be handled differently depending on how this option is marked.

Receiving a Payment ("Allocate Expenses to Owners" is NOT marked)
When the "Allocate Expenses to Owners" option is not marked in the preferences the expenses that are marked as AFE expenses will not process on the run closings and will not appear on any of the disbursement reports. The only reports that will be affected by these expenses are those found under the AFE reports menu.

With this setting it is assumed that you are getting approval from each investor in advance and they are sending you full payment for the estimated expenses. The AFE reporting will display the estimated costs which represent the payment made. This will be compared to the Actual to display the variance which is the balance remaining for the AFE. The actual payment that is made does not need to hit the distribution part of the software so you will need to manage those outside the software or just post them to an account that represents this situation.

Receiving a Payment ("Allocate Expenses to Owners" is marked)
Using this option to allocate AFE expense to owners allows the actual AFE expenses allocated to each owner to appear on their Owner Distribution Statement, or JIB Statement. Since you are allocating the expenses to the owners on a run closing they are handled the same as any other expense entered into SherWare. The payments, prepayments and adjustments for these can be handled the same as described throughout the rest of this document.


You can refer to the AFE documentation for a more thorough explanation on handling AFE balances, payments, and adjustments.

© Pivoten, LLC, 2023 • Updated: 05/22/15
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