Prepaid

USA Discussion in 'Individuals' started by CharlieN234, Jan 2, 2017.

  1. CharlieN234

    CharlieN234

    Joined:
    Jan 2, 2017
    Messages:
    1
    Likes Received:
    0
    Hi Everyone,

    I am having difficulty defending the logical and accepted accounting practice with prepaid transactions with my boss and would like to consult with some of you out there hopefully some of you will convince my theory is either not acceptable or accepted at some level where I can leverage.

    Below is my question:

    If an invoice is dated in the current period, however the actual expense to be consumed with the future mont, how does the transaction should be recorded in the current mont in accounting?

    My theory:

    If a transaction for example if an invoice has a current period, but the expense does actually consume in the future month. Technically, if I close the current month than should I consider the entry be entered in its current period with PREPAID as the allocation entry and would have to justify the entry to expense when the cost actually occurs?

    Scinarios: I was told that it is a wrong entry, and told that the invoice doesn't have to be accounted in the current period unless the cost hit the cash account in the current month. Am I over thinking? I see where it's coming but somehow I'm not too convincing and why is that, can someone help me?
     
    CharlieN234, Jan 2, 2017
    #1
    1. Advertisements

  2. CharlieN234

    Radek Výtisk

    Joined:
    Dec 19, 2016
    Messages:
    14
    Likes Received:
    0
    Hi Charlie,

    I assume that your accounting is accrual-based. In this case, if I understand it correctly, you received an invoice let's say in December, dated December. Now, there is a question, whether you paid that invoice in December or not. If you did pay it in December, but the expense it relates to are to be incurred only in January, you should book Debit Prepaid expenses / Credit Cash. However, in case you did not pay the invoice in December, I wouldn't book it in December at all, unless there are some rules regarding for example VAT on that invoice that would make you book it already in December (just for reference, in my country, VAT must be included in the monthly VAT return based on the month when the invoice was received, not according to the month of it's actual date).

    Hope this helps, in case of any questions let me know
     
    Radek Výtisk, Jan 2, 2017
    #2
    1. Advertisements

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments (here). After that, you can post your question and our members will help you out.
Similar Threads
  1. L. T. Portella

    recording prepaid income taxes

    L. T. Portella, Jun 25, 2003, in forum: Accounting
    Replies:
    6
    Views:
    14,794
    Ima Goodlay
    Jun 28, 2003
  2. vibrase

    Prepaid Invoice Question

    vibrase, Jul 22, 2003, in forum: Accounting
    Replies:
    4
    Views:
    3,067
    vibrase
    Jul 23, 2003
  3. VHarris001

    Prepaid Customer Accounts

    VHarris001, Nov 29, 2003, in forum: Accounting
    Replies:
    6
    Views:
    958
    Wolfgang Rochow
    Dec 1, 2003
  4. R

    Heard of PrePaid Tax Network?

    R, Jul 25, 2006, in forum: Accounting
    Replies:
    3
    Views:
    571
    Barnabas Collins
    Jul 28, 2006
  5. Kreager

    Prepaid Expenses

    Kreager, Nov 29, 2004, in forum: Tax
    Replies:
    1
    Views:
    446
    John H. Fisher
    Nov 30, 2004
  6. J-Man

    Prepaid Mortgage Interest

    J-Man, Jan 18, 2005, in forum: Tax
    Replies:
    6
    Views:
    947
  7. toller

    Prepaid funeral expenses?

    toller, Mar 17, 2005, in forum: Tax
    Replies:
    8
    Views:
    1,597
    D. Stussy
    Mar 30, 2005
Loading...