Invoiced in advance-how to incorporate

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Kaustuv (Querist)
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02 May 2008 The company's financial year ends on December 31. Now it has received an invoice on September 2007 from one of its service provider for services to be performed in the year 2008( invoiced in advance) It has not not paid the amount of the invoice till December 31 2007, it has paid only in March 2008. The expenditure purely pertains to the period commencing January 1 2008. Now the question is how the company will incorporate the effect of this invoice in the accounts prepared for the year ended 31.12.2007. It should not book this expenditure(and show as an outstanding item) in the year 2007 because it does not relate to this period. How the company should give effect to this invoice in the accounts prepeared for the year ended 31.12.2007? Please provide some guidance in this respect.

CA. Yayati Tyagi

CA. Yayati Tyagi (Expert)
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03 May 2008 You should treat it like a prepaid expenditure. Accounting entry can be like this :
if exp. only booked :

On 31 dec.-
Expenses for next year A/c dr.
To party cr.

(in narration give full details)

This a/c will be shown in current assets head.

Although company have not paid the amount in this case, but for the clarification, entry would be simply dr. to party cr. to bank. On 1 Jan. can trf first a/c to exp. a/c or can do the same when service is done.

Kaustuv

Kaustuv (Querist)
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06 May 2008 Thanks Yayati..

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