Foreign exhibition expenses -

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Kapil Jain (Querist)
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29 July 2015 Respected Members,

My sir visited at foreign exhibition held in Dubai in May 2015.
But payment for this exhibition is made in Jan 2015, since the amount involved is huge, i want to clarify,
Whether this expense should be shown as prepaid expense in F.Y 2014-15 or not ?
If yes,then on what basis??
please reply

Kapil Jain

Kapil Jain (Querist)
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30 July 2015 Dear Members,

Kindly reply

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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25 July 2024 In accounting, whether to treat an expense as prepaid or not depends on when the economic benefit of the expenditure is expected to be consumed. Let's address your scenario regarding the foreign exhibition expenses incurred by your sir in Dubai:

### Basis for Treatment:

1. **Payment Date vs. Expense Recognition Date:**
- **Payment in January 2015:** This is the date when the cash outflow occurred. However, from an accounting perspective, cash payment does not necessarily dictate when an expense is recognized.
- **Expense Incurred Date (May 2015):** This is when your sir actually attended the exhibition and incurred the expenses related to travel, accommodation, exhibition fees, etc.

2. **Matching Principle:**
- According to the accrual basis of accounting (which is generally followed), expenses should be recognized in the period in which they are incurred, regardless of when the cash payment was made.
- The **matching principle** requires that expenses should be matched with the revenues they help to generate, or with the period in which they are incurred, to accurately reflect the financial performance of the company for that period.

3. **Prepaid Expense Criteria:**
- Expenses are typically treated as prepaid when the payment is made in advance of the period to which it relates, and when the economic benefit will be realized in future periods.
- In your case, since the exhibition took place in May 2015, and assuming your financial year-end is March 31, 2015-16, the economic benefit (i.e., your sir's attendance at the exhibition) relates to the financial year 2015-16, not 2014-15.

### Conclusion:

- **Expense Recognition:** The expenses related to the foreign exhibition should be recognized in the financial year 2015-16, when the event actually took place and your sir incurred the related costs.
- **Not Prepaid Expense:** Therefore, these expenses should not be treated as prepaid expenses in the financial year 2014-15 because the economic benefit (attendance at the exhibition) was not realized during that period.

### Accounting Entry (if not yet recorded):

Assuming these expenses were not yet recorded:

- Debit: Foreign Exhibition Expenses (May 2015)
- Credit: Bank Account (January 2015 payment)

This entry ensures that the expenses are recognized in the correct financial year when they were actually incurred, adhering to the matching principle of accounting.

Always consult with your accountant or financial advisor to ensure compliance with accounting standards and specific requirements applicable to your organization.

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