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Pre paid expense qualify

Cost Accounts 201 views 1 replies

Anbu

Manager

21 Points Joined January 2012

Hi Team

Need your guidance and input on prepaid expenses, i want to know is there any standard rulre to arrive the prepaid expenses or a Magic number for the year cost,( assuming we receive invoice for the AMC for the cost for 1 year) can we book the entire amount in the month of invoice received or do we need to book it to prepaid expense and allocate the expenses month by month? (is it mandotory to do it month wise? as per accounting stadard) or it just up to the company to decide to take the cost in month month or spread it to 12 months?

Hope i made point clear and expencting your sugeestions.

Thanks

Anbu

Replies (1)

satish

teaching

2046 Points Joined February 2009

1. annual maintenance charges means there should be an agreement between the organisation and service provider. based on the charges which is covered in the agreement we can recognise the exp as on reporting date. suppose agreement entered on 1-10-2016.

Entry on 31-3-2017

maintenance Charges a/c Dr XXX (amount for 6 months, from 1-10-2016 to 31-3-2017)

O/s Charges XXX

Entry on the date of payment (bill amount)

Maintenance charges A/c Dr XXX (from 1-4-2017 to 30-9-2017)

O/s Charges A/c Dr XXX

To Bank A/c XXX

No need to recognise on monthly basis.

If no agreement, we can get the information from service providers from time to time. you can get rough copy of services received and total cost incurred upto reporting date. that copy can be useful for evidence for the entry.