USA GAAP and Pre-Paid Expenses

[eas34567]

Hello, I have a quick technical question regarding pre-paid expenses and the matching principle with expenses.

I will explain a scenario and my questions.

In September, company X has the following expenses:

$35,000 non-refundable expense to reserve a venue for an event that will be held in October.
$10,000 in airfare tickets that are not refundable, but can be transferred to another date. (Tickets are for event in October)
$5,000 of tickets that are non refundable, and non-transferable. (Tickets are for event in October)
$5,000 of swag and items that will be handed out at the event in October).
$2,000 Bill dated 09/04 for setup services to be performed at the event in October.



My question is regarding the nature of the matching principle and GAAP. In the example above, are all the the expenses above booked to pre-paid expense in September, and then expensed in October? Or, since some of the expenses are non-refundable, and non-transferable, do those need to be expensed immediately? Any insight is really appreciated.

 

[DTA93433]

I would book all the items as prepaid expenses in September. The bill dated 09/04, I'm not sure about. That would depend on whether or not the company is on a cash vs. accrual basis. The matching principle requires matching expenses incurred in a period against revenue earned (in that same period). I would argue that these items be booked as prepaids in September and then re-classified as expenses in October to offset ("match") any revenue that may be earned. The fact that some of these expenses are either non-refundable and/or non-transferable in September is irrelevant because these preliminary costs would not be incurred (in the first place) if there were no event to be held in October. The other argument someone could make, however, is that not all revenue (in regards to the trade show) will be earned in October, but may be earned in subsequent months. In that case, an argument could be made, therefore, to expense certain non-refundable, non-transferable costs as expenses when they are paid (September). Very interesting question though.....not so cut/dried. I'd like to know the "official" answer. But again, I'd stick with what I said at the beginning. Good luck.