Why spread expenses over periods?

Instead of spreading expenses over period they relate to one could simply add the total to one period’s expense and be done with it. Of course, that is an option.

However, when you think about it, wouldn’t it make more sense to have an expense spread? Surely you can see the benefits – less expense for one period for one. 

According to the accrual basis method of accounting expenses are to be accounted in the periods they relate to. So when you’ve bought a subscription for an example for 2 years, this expense should be spread over those 24 months. Under normal conditions it would be that the spreading is done equally, i.e. dividing the total sum with 24 months and accounting the result each month in expenses.

However, should the expense be related to a service you received once every three months for an example or some other interval, the expense should only be shown in the months you’re actually receiving the service in.

The general idea behind showing services, which are spread over periods, is to show them in your accounting as well as spread over period the service itself is received.

Yes, of course if the amount is immaterial, you can obviously account it in expenses in total right when the expense is made, i.e. when you buy the service for an example.

1 thought on “Why spread expenses over periods?

  1. Chantalle

    If you have to decide between paying for example your marketing amount in one month or spread the amount over three months which factors should you consider before making a decision?

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