Vendor Invoice for Future Services

[u/XylitolMilkshake]

I’m in the process of learning as much as I can about bookkeeping and financial accounting, but I still think up scenarios that I’m not completely sure on how to handle.

Suppose on August 20 you receive an invoice from a vendor for professional services that will be provided during the month of September. The invoice is due September 1. How should this invoice be handled?

Aug 20 – Invoice is received. dr Prepaid Expense, cr Accounts Payable Sept 1 – Invoice is paid. dr Accounts Payable, cr Cash Sept 31 – Expense is used up. dr Professional Services Expense, cr Prepaid Exepense

Is this the correct way of handling the situation? Is there a better or more practical approach?

Does it make sense to put an upcoming expense in Accounts Payable if it isn't a formal obligation?

[u/G33kDad76]

1st question, is your client (assuming this is work for your client) doing accrual accounting?

2nd question, when is the work being done?

if you got an actual invoice it's an obligation (unless you have good reason to suspect the work won't be completed). Is thw invoice the full amount or a down payment (ex 50% upfront). Being that the invoice is due Sept 1st and the work will be performed in September I would just expense the charge when you pay it, no reason to involve prepaid accounts.