Hello,
I work in the accounting department for a large corporation. We received a 500k subscription invoice in March covering an entire year(Jan-Dec) and signed a contract for the services in Feb. The services run for a 12 month period. We did not pay the invoice until April 2016.
We used their services for January, February, March, and April and will continue to use their services throughout the year. What is the proper accounting treatment after signing the contract in February? Do we accrue the entire amount(500k) of the contract at the time of contract signing? Credit accrued payables for 500k and debit prepaid(or some other current asset account) for 420k(500-40*2) ? Or do we only accrue Jan and Feb even though we signed a contract?
I'm torn on this issue because I thought grossing up the balance sheet should be avoided but I understand that we also want to record the liability... Is there any literature on the issue?
Thanks for your help and let me know if you need more information.
Thanks,
Ryan
I work in the accounting department for a large corporation. We received a 500k subscription invoice in March covering an entire year(Jan-Dec) and signed a contract for the services in Feb. The services run for a 12 month period. We did not pay the invoice until April 2016.
We used their services for January, February, March, and April and will continue to use their services throughout the year. What is the proper accounting treatment after signing the contract in February? Do we accrue the entire amount(500k) of the contract at the time of contract signing? Credit accrued payables for 500k and debit prepaid(or some other current asset account) for 420k(500-40*2) ? Or do we only accrue Jan and Feb even though we signed a contract?
I'm torn on this issue because I thought grossing up the balance sheet should be avoided but I understand that we also want to record the liability... Is there any literature on the issue?
Thanks for your help and let me know if you need more information.
Thanks,
Ryan