{"id":3450,"date":"2012-10-17T07:08:56","date_gmt":"2012-10-17T05:08:56","guid":{"rendered":"http:\/\/www.officetodo.com\/public\/?p=3450"},"modified":"2012-10-14T07:10:48","modified_gmt":"2012-10-14T05:10:48","slug":"prepayments-accounting-for-them","status":"publish","type":"post","link":"http:\/\/www.officetodo.com\/public\/prepayments-accounting-for-them\/","title":{"rendered":"Prepayments \u2013 accounting for them"},"content":{"rendered":"<p>Accounting for prepayments is somewhat of a hassle. There\u2019s a little bit more to it than just one entry for the expense and one for the payment made to the supplier.<\/p>\n<ol>\n<li>Initially you recognize that you made a payment through crediting your bank or cash balance. This is where you gave up something to get something in return. Now what was it that you got?<\/li>\n<li>You got something you\u2019ll be using at a later date \u2013 a promise to receive service used over a period of time in future.<\/li>\n<li>This promise is something you account on your balance sheet as an asset \u2013 a prepayment made for this something you got. You\u2019re accounting for this promise that you\u2019ll \u201ccollect\u201d when the time is right.<\/li>\n<li>When with your credit you showed that you paid for this with cash or bank transfer, then with your debit you\u2019ll show what you got in return. Your accounting entry will show that you gave away money so you\u2019d receive something in future.\u00a0<!--more--><\/li>\n<\/ol>\n<p>So with this course of actions your debiting your assets with the prepaid balance and crediting your assets with the sums paid. But that\u2019s not all when it comes to prepayments. There\u2019s one more thing to do and it\u2019s distributing this expense over the period of time the service is received.<\/p>\n<p>Now when you think about it, you recognized a service to be received as an asset and now when it\u2019s being \u201cconsumed\u201d, it\u2019s to be expensed. With the above you didn\u2019t really show that you used the service just yet and with expensing it you\u2019re doing exactly that. So what you do is simply debit each month parts of the prepaid balance into expenses and credit the prepayment balance on the balance sheet. Your goal here is to reach to 0 prepaid balance for this particular entry at the time the service is stopped. It\u2019s to be spread exactly over the period you\u2019re using the service as well.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Accounting for prepayments is somewhat of a hassle. There\u2019s a little bit more to it than just one entry for the expense and one for the payment made to the supplier. Initially you recognize that you made a payment through crediting your bank or cash balance. This is where you gave up something to get [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,65],"tags":[],"class_list":["post-3450","post","type-post","status-publish","format-standard","hentry","category-1-basic-accounting","category-1-14-prepayments-received"],"aioseo_notices":[],"_links":{"self":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/3450","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=3450"}],"version-history":[{"count":2,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/3450\/revisions"}],"predecessor-version":[{"id":3454,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/3450\/revisions\/3454"}],"wp:attachment":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=3450"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=3450"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=3450"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}