[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]

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.

[mla1169]

and I do apologize for saying no concept of accrual accounting. But if the invoice is reasonably expected to be paid during the regular accounts payable cycle and is received before year end, it is proper to have it included in the payables balance.

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

Massachusetts CPA (non reporting) since 3/12.

[mla1169]

and I do apologize for saying no concept of accrual accounting. But if the invoice is reasonably expected to be paid during the regular accounts payable cycle and is received before year end, it is proper to have it included in the payables balance.

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

Massachusetts CPA (non reporting) since 3/12.

[LaxCPA]

Ah the 12 month rule. Too many to keep track of. No worries mla!

[LaxCPA]

Ah the 12 month rule. Too many to keep track of. No worries mla!

[Gatorbates]

Someone said “Panties” 🙂

Licensed Florida CPA:
B: 71, 73, 79
A: 83
R: 78 (expired), 77
F: 74, 74, 80

It's finally freaking over.

[Gatorbates]

Someone said “Panties” 🙂

Licensed Florida CPA:
B: 71, 73, 79
A: 83
R: 78 (expired), 77
F: 74, 74, 80

It's finally freaking over.

[number_cruncher_24]

I just wanted to thank everyone who responded to my post. Your insight was very helpful.

[number_cruncher_24]

I just wanted to thank everyone who responded to my post. Your insight was very helpful.

[jeff]

Did you end up plugging APIC?

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

[jeff]

Did you end up plugging APIC?

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

[iwannabeacpasofreakinbadpass]

So what is the final answer? I have this situation in real life case and am wondering what would be done. If you DR. prepaid then you must CR. cash but what if you dont have teh cash on hand to CR. cash and you would like to CR. prepaid, then it is not a true prepaid… any solutions?

[iwannabeacpasofreakinbadpass]

So what is the final answer? I have this situation in real life case and am wondering what would be done. If you DR. prepaid then you must CR. cash but what if you dont have teh cash on hand to CR. cash and you would like to CR. prepaid, then it is not a true prepaid… any solutions?

[Mayo]

What's the asset?

Mayo, BBA, Macc

[Mayo]

What's the asset?

Mayo, BBA, Macc

[Author]

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