[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.

[Mayo]

Master's in Accounting: Allowing you to engage, and possibly win, pedantic and nerdy accounting arguments over the internet.

Gotta luv it.

Mayo, BBA, Macc

[Anonymous]

Ratio's aside for a moment, we are talking about an insurance contract here in this little scenario from hell. My opinion, and it's really not worth much until you pay me for it, is that the reason the FASB took the stand they took on this topic is because insurance isn't an optional purchase anymore. You really aren't inflating your assets any more than you are inflating your liabilities. A certain amount of money is going to be spent on insurance in a year, whether it is that particular amount or not, doesn't matter. Pay now, or pay later, but you are going to pay.

[Anonymous]

Ratio's aside for a moment, we are talking about an insurance contract here in this little scenario from hell. My opinion, and it's really not worth much until you pay me for it, is that the reason the FASB took the stand they took on this topic is because insurance isn't an optional purchase anymore. You really aren't inflating your assets any more than you are inflating your liabilities. A certain amount of money is going to be spent on insurance in a year, whether it is that particular amount or not, doesn't matter. Pay now, or pay later, but you are going to pay.

[acamp]

What if they sell the asset? What if they are required to hire 3rd party valuation specialist who declares the value of the insured asset to be significantly impaired from the insured amount and the insurance company will only insure up to the appraised value, which consequently will reduce the premium on the policy which in turn will reduce the phantom prepaid asset?!

Ninja + Wiley Test Bank: [FAR - 81] [REG - 76] [BEC - 88] [AUD - 73](doh!)

Becker Videos: [AUD - 82]

California CPA

[acamp]

What if they sell the asset? What if they are required to hire 3rd party valuation specialist who declares the value of the insured asset to be significantly impaired from the insured amount and the insurance company will only insure up to the appraised value, which consequently will reduce the premium on the policy which in turn will reduce the phantom prepaid asset?!

Ninja + Wiley Test Bank: [FAR - 81] [REG - 76] [BEC - 88] [AUD - 73](doh!)

Becker Videos: [AUD - 82]

California CPA

[nicole2035]

Wouldn't it be a payable right now because you pay for insurance ahead of time similar to rent. You should pay for it before service actually starts. It all depends how you'd like to expense it too, kind of subjective because it starts middle of the of the month. Most won't expense it for half of a month. Not only that when you record the payable then prepaid it's not gonna change anything.

[nicole2035]

Wouldn't it be a payable right now because you pay for insurance ahead of time similar to rent. You should pay for it before service actually starts. It all depends how you'd like to expense it too, kind of subjective because it starts middle of the of the month. Most won't expense it for half of a month. Not only that when you record the payable then prepaid it's not gonna change anything.

[acamp]

hahaha 😉

I'm gonna print this thread and hand it to all new associates.

Ninja + Wiley Test Bank: [FAR - 81] [REG - 76] [BEC - 88] [AUD - 73](doh!)

Becker Videos: [AUD - 82]

California CPA

[acamp]

hahaha 😉

I'm gonna print this thread and hand it to all new associates.

Ninja + Wiley Test Bank: [FAR - 81] [REG - 76] [BEC - 88] [AUD - 73](doh!)

Becker Videos: [AUD - 82]

California CPA

[Anonymous]

@acamp – What if it's a liability policy? Not tied to one asset.

[Anonymous]

@acamp – What if it's a liability policy? Not tied to one asset.

[acamp]

What if the credit rating changes?

Ninja + Wiley Test Bank: [FAR - 81] [REG - 76] [BEC - 88] [AUD - 73](doh!)

Becker Videos: [AUD - 82]

California CPA

[acamp]

What if the credit rating changes?

Ninja + Wiley Test Bank: [FAR - 81] [REG - 76] [BEC - 88] [AUD - 73](doh!)

Becker Videos: [AUD - 82]

California CPA

[Mayo]

Exactly. Especially if the insurance is compulsory.

Auto insurance? Yup, gotta have that if you have commercial trucks

Workers Comp? Yup, depending on the state and # of employees

Health Care for large firms? Yup or pay a penalty or direct employees to exchanges; Unless you're Hobby Lobby.

Mayo, BBA, Macc

[Mayo]

Exactly. Especially if the insurance is compulsory.

Auto insurance? Yup, gotta have that if you have commercial trucks

Workers Comp? Yup, depending on the state and # of employees

Health Care for large firms? Yup or pay a penalty or direct employees to exchanges; Unless you're Hobby Lobby.

Mayo, BBA, Macc

[Author]

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