Hi,
I'm new to the forum and can't find guidance anywhere for this topic. If it's a dupe, I apologize but I need to figure this out if possible.
We have a multi-year non-cancellable contract with a vendor who supplies us with data on a regular basis (lists of business information). We consider this to be a multi-year subscription, so it would seem you take 1/12 per month which is simple enough; however, the contract price increases each year. I handle this by finding the average cost per month over the entire contract period and booking that to expense. The difference in payment versus expense is booked as an accrual. I'm treating it like a lease more or less, so that in the beginning years, I am taking more expense and then in the later years paying more and drawing down the accrual against it. Problem is that I can't find any guidance to support my way of doing this. I have done it this way for years at different companies including my current company where my predecessor was doing the same thing. I have had external audits over the years where the auditors never questioned this treatment. However, the new boss disagrees with the treatment and says we should book expense based on payment. This doesn't sound right to me but I don't have anything to back up my position. Thanks for any of your responses.
I'm new to the forum and can't find guidance anywhere for this topic. If it's a dupe, I apologize but I need to figure this out if possible.
We have a multi-year non-cancellable contract with a vendor who supplies us with data on a regular basis (lists of business information). We consider this to be a multi-year subscription, so it would seem you take 1/12 per month which is simple enough; however, the contract price increases each year. I handle this by finding the average cost per month over the entire contract period and booking that to expense. The difference in payment versus expense is booked as an accrual. I'm treating it like a lease more or less, so that in the beginning years, I am taking more expense and then in the later years paying more and drawing down the accrual against it. Problem is that I can't find any guidance to support my way of doing this. I have done it this way for years at different companies including my current company where my predecessor was doing the same thing. I have had external audits over the years where the auditors never questioned this treatment. However, the new boss disagrees with the treatment and says we should book expense based on payment. This doesn't sound right to me but I don't have anything to back up my position. Thanks for any of your responses.