Me again, with regards to the above, the main item is telephone bills, the amount is small and immaterial, but all the same it relates to the year after the date of Invoice so therefore would be a prepayment, I understand the relevant postings but my question is with a sole trader, 1st year trading, would you actually carry out a prepayment in the accounts if it is a small amount? also I take it you would time apportion the amount over dates that the usage is for??? sorry if this sounds silly but what I'm getting at would you carry this out for a small self employed person for an immaterial amount.
Just wondered what your thoughts were on the situation, haven't really got anyone else to ask. No-one I know around me knows accounts etc.....
Where I am now we do not apportion any very small amounts plus with telephone bills the rental is in advance and the calls are in arrears. If it was me I wouldnt go to the bother of raising a journal for an immaterial amount. Julie
I Have known it whereby an estimated amount is used based upon the last two quarters Telephone to make a small adjustment after the year end date ie albeit a small amount ie An Accrual for telephone of 50.00 in the profit and loss then Accruals on the Balance Sheet and a prepayment of 30.00 ect but as Julie and Back office Group say is it worth it on a small scale.
I wouldn't bother either if it is a small amount, if however, it was say 3 months rent in advance then that's a different matter. Also ensure you accrue for any large bills which are known to be in the pipeline, as these also would have a material affect on the profit.
I think its a case of bearing in mind the materiality concept. The decision would be based on how much effort is required to calculate the accrual in relation to its value and the size of the business.
A £30 accrual for a phone bill would make a big difference to my current businesss situation but to Microsoft Corp it wouldn't cause Bill Gates to lose sleep
