[number_cruncher_24]

Hi – I was wondering if someone could help me with an accounting question – here’s the scenario: Our fiscal year ends on May 31. We received a bill for our insurance policy on May 20. The bill is for insurance for the period of 6/15 through 12/15. We enter all bills into the system when received. When I enter this bill into the system, it will result in a credit to A/P but which account should be debited? It’s not an expense for the current fiscal year because it is for a future period, but we won’t pay it until after 5/31, so it’s not a prepaid yet either.

[mla1169]

If you're entering it in AP before your year end, it goes to prepaid. I realize the actual check won't be cut until your next fiscal year but such is the method of accrual accounting.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[mla1169]

If you're entering it in AP before your year end, it goes to prepaid. I realize the actual check won't be cut until your next fiscal year but such is the method of accrual accounting.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[Mayo]

What mla1169 said.

Mayo, BBA, Macc

[Mayo]

What mla1169 said.

Mayo, BBA, Macc

[LaxCPA]

I would either wait and put the bill in after May 31 or enter the date of the bill after May 31 so it doesn't show up on your year end financials. If your company won't allow you to do that you can enter the bill like usual debit insurance expense but then you will need an adjusting entry Debit A/P Credit Insurance expense that will be reversed on June 1. Having it as an A/P and an prepaid overstates your assets and liabilities.

[LaxCPA]

I would either wait and put the bill in after May 31 or enter the date of the bill after May 31 so it doesn't show up on your year end financials. If your company won't allow you to do that you can enter the bill like usual debit insurance expense but then you will need an adjusting entry Debit A/P Credit Insurance expense that will be reversed on June 1. Having it as an A/P and an prepaid overstates your assets and liabilities.

[Not a Quitter]

So your system records a payable when the goods or services haven't been received yet?

FAR- 85 I'm DONE!
BEC- 75
REG- 60,60,75
AUD- 74,74,83

CPAExcel used for BEC, AUD, REG
Exam Matrix used for FAR plus NINJA Blitz, cpareviewforfree and a little CPAExcel

[Not a Quitter]

So your system records a payable when the goods or services haven't been received yet?

FAR- 85 I'm DONE!
BEC- 75
REG- 60,60,75
AUD- 74,74,83

CPAExcel used for BEC, AUD, REG
Exam Matrix used for FAR plus NINJA Blitz, cpareviewforfree and a little CPAExcel

[mla1169]

Lax it does not overstate your assets or liabilities IF you've received an invoice dated before the year end. Actually you need to record it, if the invoice is dated before year end. I think you are confusing cash basis and accrual basis accounting.

What if your auditors choose the insurance company to send a confirmation letter to? They are going to say they have a receivable on their end dated May 20. If the OP hasn't posted it, the auditors may insist that they do an entry to reflect the payable.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[mla1169]

Lax it does not overstate your assets or liabilities IF you've received an invoice dated before the year end. Actually you need to record it, if the invoice is dated before year end. I think you are confusing cash basis and accrual basis accounting.

What if your auditors choose the insurance company to send a confirmation letter to? They are going to say they have a receivable on their end dated May 20. If the OP hasn't posted it, the auditors may insist that they do an entry to reflect the payable.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[LaxCPA]

Accounts payable is not recorded based on the date of the invoices, it is based on the dates of service/product received. It is not a payable because the Insurance coverage starts June 15. If my December electric bill is dated January 10th it is still a payable even though the invoice date is after year end. The way I think about payables is if the business ended May 31, 2014 would you still be obligated to pay it? In this case if the business closed you could call the insurance company, say we no longer need insurance and have no obligation to pay.

[LaxCPA]

Accounts payable is not recorded based on the date of the invoices, it is based on the dates of service/product received. It is not a payable because the Insurance coverage starts June 15. If my December electric bill is dated January 10th it is still a payable even though the invoice date is after year end. The way I think about payables is if the business ended May 31, 2014 would you still be obligated to pay it? In this case if the business closed you could call the insurance company, say we no longer need insurance and have no obligation to pay.

[mla1169]

Lax sorry but you are mistaken. EXPENSING an item is based on when the good or service is received. Payables does not equal expense.

Its not about how you think about it, its about GAAP.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[mla1169]

Lax sorry but you are mistaken. EXPENSING an item is based on when the good or service is received. Payables does not equal expense.

Its not about how you think about it, its about GAAP.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[LaxCPA]

I am following GAAP. You can't record a prepaid asset for something that has not been paid.

[Author]

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