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Accounting For Prepaid Expenses

accounting for prepaid expensesWe are paying for a trade conference (event day in 2014) that over the next couple of months we will not be eligible for a refund. Should the prepaid trade conference to booked to an expense account or a prepaid asset account?

Answers

Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

Correct matching principle would be to record as prepaid and to expense when the event occurs. If the costs are not material to your company you can feel free to expense outright. I would not put too much weight on whether it can be refunded or not. Vendors put that language in agreements but will generally work with you as they have little to gain from aggravating the relationship.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

Agreed. Do not overthink this. If the costs are as immaterial as I might imagine they are in the bigger scheme of things, just book the expense when paid and book the refunds when received.

If you're worried about receiving those refunds, go ahead and book a receivable for the refunds at the same time you book the expense so that you can track the activity and ensure future repayments.

Timothy Ogden
Title: President/CFO
Company: Joseph Elon, LLC
(President/CFO, Joseph Elon, LLC) |

I completely (but respectfully) disagree with your suggestion. Just out of curiosity, what's your suggestion for the offset (CR) account when you book that receivable (DR)? Perhaps a prepaid or some other contra-asset on your balance sheet that should be attended to at month-end close?

Jane Levin
Title: Corporate Controller
Company: Private
(Corporate Controller, Private) |

Although hang on, wouldn't this go to COGS if it were a conference your company was putting on as a "product"? That seems like it might be the case here. If your company is putting on the conference and charging for, say, sponsorships, then this would still be hung up on the balance sheet, but it would dump into COGS when the event happens to match up with the event's revenue. Or am I wrong? :)

Topic Expert
Karoline Mello
Title: Director, FP&A
Company: Apollo Group
(Director, FP&A, Apollo Group) |

I would say that the expense is under "expos and conventions" - if you don't have one advertising works. COGS should be limited to more direct attribution to the products and services being sold. Also – apply the payments as a prepaid on the books until the event. Expense it in the month of the event.

Kevin Roones
Title: Senior Accounting Professional
Company: In-between
(Senior Accounting Professional, In-between) |

I would agree that it should be recorded as a prepaid and expensed when the event occurs. It seems like this is traditionally expensed as SG&A; calling it COGS is a stretch to me.

Timothy Ogden
Title: President/CFO
Company: Joseph Elon, LLC
(President/CFO, Joseph Elon, LLC) |

Ken is correct--the matching principle applies here. The availability of a refund (or lack thereof) has no impact on your accounting. The justification of the actual period(s) of recognition could be debated and reasonably argued, but again--the matching principle applies here.

As for the other replies, regardless of whether or not you're an exhibitor at this trade day, it would never be booked as a COGS. If you're an exhibitor, most of what you would incur would be recognized as expenses of a promotional nature. In the event you actually sell something, those products (and perhaps any directly-applicable labor burden) would be costed as goods sold.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

Put in prepaids until the event and expense to SG&A.

Timothy Ogden
Title: President/CFO
Company: Joseph Elon, LLC
(President/CFO, Joseph Elon, LLC) |

Just on a personal note, I've seen some charts of accounts belonging to some small businesses that seem to capture every little bitty expense as an individual GL account. At some point, you'll want to avoid that practice and use reports to sort and manage such detail.

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