[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]

“This is a future transaction. It has not occurred yet. No benefit has been received. If they chose another insurance provider and informed the original insurer before the start of the period covered, they could crumble up your precious invoice and never pay another dime to the company. This should show you that it is in fact not a liability.”

No, it's a Non-Recourse liability. They in effect take control of the asset, in this case the policy, and destroy it. The economic value to them was in the future stream of premium payments. The policy now has no other tangible value, so they don't need it.

Doesn't mean it wasn't owed. It just means that it was owed, not paid, and now the company no longer has access to the policy.

Mayo, BBA, Macc

[Not a Quitter]

This thread is riveting, but the more I read it the more confused I get!! I wonder how the OP feels, haha. I do not think he/she has been back.

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]

This thread is riveting, but the more I read it the more confused I get!! I wonder how the OP feels, haha. I do not think he/she has been back.

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

[acamp]

Still don't like the idea of being able to inflate assets by entering into an insurance policy which may not even impact the current accounting period.

Such that, for example, anyone with a current ratio of less than 1 can improve their ratio by signing an insurance policy!

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

Becker Videos: [AUD - 82]

California CPA

[acamp]

Still don't like the idea of being able to inflate assets by entering into an insurance policy which may not even impact the current accounting period.

Such that, for example, anyone with a current ratio of less than 1 can improve their ratio by signing an insurance policy!

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

Becker Videos: [AUD - 82]

California CPA

[Mayo]

“anyone with a current ratio of less than 1 can improve their ratio by signing an insurance policy!”

Sure. That's why a Current Ratio by itself is BS anyways. I'd rather use the Acid-Test Ratio. It excludes Inventories and Prepaids.

Mayo, BBA, Macc

[Mayo]

“anyone with a current ratio of less than 1 can improve their ratio by signing an insurance policy!”

Sure. That's why a Current Ratio by itself is BS anyways. I'd rather use the Acid-Test Ratio. It excludes Inventories and Prepaids.

Mayo, BBA, Macc

[acamp]

Ha, doesn't change the point

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

Becker Videos: [AUD - 82]

California CPA

[acamp]

Ha, doesn't change the point

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

Becker Videos: [AUD - 82]

California CPA

[mla1169]

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.

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

Massachusetts CPA (non reporting) since 3/12.

[mla1169]

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.

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

Massachusetts CPA (non reporting) since 3/12.

[Mayo]

Besides, if a damn insurance policy, which usually isn't all that material, is impacting covenants or significantly increasing assets, just disclose the sucker.

“FN 1: Although we operate in Antartica, we obtained very expensive volcano insurance cuz why the hell not? Premiums are due to be paid…etc.”

Besides, it's basically an interest-free financed policy at that point really. It's not like they don't take a liability hit either.

Edit: Just realized I totally missed the boat on your current ratio question. Current Ratio shouldn't change. AP goes up, Prepaids go up. No net effect.

Mayo, BBA, Macc

[Mayo]

Besides, if a damn insurance policy, which usually isn't all that material, is impacting covenants or significantly increasing assets, just disclose the sucker.

“FN 1: Although we operate in Antartica, we obtained very expensive volcano insurance cuz why the hell not? Premiums are due to be paid…etc.”

Besides, it's basically an interest-free financed policy at that point really. It's not like they don't take a liability hit either.

Edit: Just realized I totally missed the boat on your current ratio question. Current Ratio shouldn't change. AP goes up, Prepaids go up. No net effect.

Mayo, BBA, Macc

[acamp]

Ah, we've moved onto managerial accounting! (what if they are operating at a loss?!) har har har 😉

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

Becker Videos: [AUD - 82]

California CPA

[acamp]

Ah, we've moved onto managerial accounting! (what if they are operating at a loss?!) har har har 😉

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

Becker Videos: [AUD - 82]

California CPA

[Author]

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