When recording an invoice received from a supplier for advertising but the advertising would take place the following month e.g. Invoice received 15th October but for advertising taking place for the month of November should I:
So whats happening is that you have placed an advertisment. The advertiser has invoiced you but you have not made payment yet.
Its not a prepayment as you haven't actually given across any money yet.
The double entry that I would go with would be :
Dr Advertising (expense)
Cr Supplier account (Accounts Payable)
when making payment
Dr Supplier account (Account Payable)
Cr Bank
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Hi shamus, thanks for your quick reply.
So if the payment goes through to the supplier for the advert, lets say 5 days after receiving the invoice which would be the 20th october this would not be classed as prepayment? Even though the advert would be for November?
Thanks
Phil
Oops, I answered a question but not the one asked... Appologies, a misread after a long day.
To update that, at the point of receiving the invoice no prepayment has been made and you record as normal
Dr Advertising (expense)
Cr Supplier account (Accounts Payable)
Only when payment is made in advance (20th of October) is a prepayment created.
kind regards,
shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
As usual, I believe that there is more than one answer to this one
My approach differs slightly from Shaun's, since for accounts purposes I would base the prepayment on the date of the service being provided and not on the date the invoice is paid. I think the word prepayment itself is actually a bit misleading.
Therefore I would process an additional entry in October after posting the invoice to the supplier/accounts payable and advertising account:
Dr Prepayments (Asset)
Cr Advertising (Expense)
Being advertising cost for November
I don't know what accounts system you use but this needs to be a reversing journal so that on 1 November the cost is debited back to advertising, removing it from the prepayment account.
Using this approach, the actual date of payment is not relevant.
However, I would not even bother with this unless I was producing management accounts as otherwise I feel that it is a pointless exercise. I would also not bother if the value of the prepayment was small, size being relative to the size of the business!
As a sort of aside - when you key the original amount to prepayments and then any reversals - what kind of narratives do people use?
Its just that I looked after some accounts ages ago and there were just amounts in the prepayments account which didnt show what period they for or any info - my tiny brain took a while to work it out! Mind you that was in the early days and I am better at them now but I try to add some detail round it (in case I fall under a bus)
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
I've always kept my prepayments on a spreadsheet that I reconcile to the ledger. Except in the olden days before computers, when I did the same thing on paper in some way that I've now forgotten, but that inspired the spreadsheet version!
When recording an invoice received from a supplier for advertising but the advertising would take place the following month e.g. Invoice received 15th October but for advertising taking place for the month of November should I:
You would credit accounts payable and debit prepaid advertising on 15 Oct and then do a journal on the 1 November to credit prepaid advertising and debit PL advertising
I've always kept my prepayments on a spreadsheet that I reconcile to the ledger. Except in the olden days before computers, when I did the same thing on paper in some way that I've now forgotten, but that inspired the spreadsheet version!
Just to give the reader more options: I create sub codes on sage for each prepayment and usually set up a recurring entry to reverse on a monthly basis (where appropriate)
My spreadsheet gives me a list of journal entries, so I can just post the changes, and not do a reversing journal. I used to create all my journals in a spreadsheet that generated a CSV file to send to the client to import, and had a standard one linked to my accruals and prepayments spreadsheets, and any other regular entries I created.
