A contract made by company X with supplier Y to conduct an advertisement campaign which will cover a period of 12 month, say from Jan to Dec.20.
The company received an invoice in advance with the total contract amount in Jan.20. ($12000)
The total amount of contract is agreed to be paid in installments on quarterly basis, say March, June, September & December ($3000) each.
My questions are:
- What is the accounting entries to be made when the invoice is received?
-Is it correct to book whole contract amount as prepayment( $12000)
-Does this kind of transaction meet the definition of asset (as per the conceptual framework).
-Is the recognition of Prepayment is connected only with physical payment.
Thanks
Ask the Tutor ACCA SBR
Recognition of Prepayments
6y ago#1Receipt of invoice - no entry
March - Dr Adv expense Cr Cash 3000
You would get a prepayment if you were paying in advance
If I am sent invoice for services next year (and I'm not paying yet), I would file it until I get the services.
Good morning,
Does it mean there wouldn't be any accrual for the adverts carried out in January and and February?
I have a different view
Dr Advert Expense A/c 1000
Cr Suppliers A/c 1000
For January and February and finally March.
***Then in March when the payment is done
Dr Suppliers A/c 3,000
Cr Bank 3000
6y ago#3Yes - you may well set up a monthly accrual in management accounts- but this an F3 issue not SBR!
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