Question

Invoice Scenario

In December of Fiscal Year 2017 (current year); you are instructed by your boss to make sure a $2.0M Invoice was paid (processed by Accounts Payable) for future services to be provided in the upcoming year (Fiscal Year 2018). The Amount is material in nature, but your boss is insistent that you get this done.

How will you respond to your boss?

Should this invoice be recognized in the current fiscal year or following fiscal year? Why or Why Not?

What Accounting Principle is in play?

Answer 1

No, this is not possible to processed the future bill through Account Payable becaue the account payable will be generate only in the cae of receipt of service and invoice will be raised against this.

But in the given schenario the service will be provided in the next year. So we can process the payment through the Advance payment process and in the closing year of 2017 this amount will be shown as in advances in balance sheet. We cannot show the expenses of the folllowing fiscal year in the current fiscal year.

So this invoice will be recognized in the following fiscal year becasue the service is not received in the current fiscal year. So the expenses will be recognize only in the year of incurred.

Accounting Prinicipal: Currently the accrued based accounting is in play, in this accounting method the expenses and income will be recongnize in the year of incurred or gained.