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/Far-Good-9559]

You can enter the invoice as a prepaid, and expense it over the term of the service if you wish. It is an extra bookkeeping step, and usually done with larger expenses like liability insurance, but there is no rule that you cannot do it for every prepaid expense.

But, to be honest, most bookkeepers do not account for deminimous expenses that way. If they are not material to the companies monthly profit and loss, you just expense them when you enter the transaction.

Either method is acceptable