[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.

[Anonymous]

I guess the 2.6% is just conservatism.

[Anonymous]

I guess the 2.6% is just conservatism.

[Anonymous]

Sorry Lax, I'll quit talking trash.

[Anonymous]

Sorry Lax, I'll quit talking trash.

[jeff]

Yes – I can see the IP and I can pretty much tell if it's a proxy.

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[jeff]

Yes – I can see the IP and I can pretty much tell if it's a proxy.

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[LaxCPA]

No problem. I just don't want to be thought of as a trouble maker. I like this site.

[LaxCPA]

No problem. I just don't want to be thought of as a trouble maker. I like this site.

[Not a Quitter]

No need to even worry about being thought of as a trouble maker. Mla got his/her panties in a twist because herd called out his/her rudeness. Glad someone finally did because I've seen it on more than one occasion here. Everyone else seems to be able to have differing opinions without snarkiness.

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]

No need to even worry about being thought of as a trouble maker. Mla got his/her panties in a twist because herd called out his/her rudeness. Glad someone finally did because I've seen it on more than one occasion here. Everyone else seems to be able to have differing opinions without snarkiness.

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]

Lol my panties are just fine thanks. This is a forum where people are somewhere in the exam process and asking if someone has studied for AUD yet is a perfectly reasonable question. If you think my answers were “rude” you're entitled.

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

Massachusetts CPA (non reporting) since 3/12.

[mla1169]

Lol my panties are just fine thanks. This is a forum where people are somewhere in the exam process and asking if someone has studied for AUD yet is a perfectly reasonable question. If you think my answers were “rude” you're entitled.

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

Massachusetts CPA (non reporting) since 3/12.

[LaxCPA]

The only one that I found somewhat rude was “LOL. No concept of accrual accounting at all.” But mla doesn't know my background so I can let it slide. I do have my CPA so I think I have a pretty good grasp. Our difference in opinion comes from whether that invoice makes it a legal payable and it could probably go either way based on different circumstances like if a contract was signed.

Additionally mla said “A smart business would get that check out 5/31 to reduce their tax liability because certain prepaids (insurance is one of them) as long as you can prove the disbursement before year end are deductible.” Is that true? My company doesn't do that and publication 535 states:

Prepayment. You generally cannot deduct expenses in advance, even if you pay them in advance. This rule applies to both the cash and accrual methods. It applies to prepaid interest, prepaid insurance premiums, and any other expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year.

If you can point me in the direction where you came up with it being deductible I would appreciate it because I would like to know for sure.

[LaxCPA]

The only one that I found somewhat rude was “LOL. No concept of accrual accounting at all.” But mla doesn't know my background so I can let it slide. I do have my CPA so I think I have a pretty good grasp. Our difference in opinion comes from whether that invoice makes it a legal payable and it could probably go either way based on different circumstances like if a contract was signed.

Additionally mla said “A smart business would get that check out 5/31 to reduce their tax liability because certain prepaids (insurance is one of them) as long as you can prove the disbursement before year end are deductible.” Is that true? My company doesn't do that and publication 535 states:

Prepayment. You generally cannot deduct expenses in advance, even if you pay them in advance. This rule applies to both the cash and accrual methods. It applies to prepaid interest, prepaid insurance premiums, and any other expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year.

If you can point me in the direction where you came up with it being deductible I would appreciate it because I would like to know for sure.

[mla1169]

Pub 538 explains when prepaids are deductible. Not all are, but this one would be.

https://www.irs.gov/publications/p538/ar02.html

Expense paid in advance. An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule.

Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following.

•12 months after the right or benefit begins, or

•The end of the tax year after the tax year in which payment is made.

If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must obtain approval from the IRS before using the general rule and/or the 12-month rule. See Change in Accounting Method, later.

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

Massachusetts CPA (non reporting) since 3/12.

[Author]

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