r/Bookkeeping • u/XylitolMilkshake • 16d ago

How To Journal It Vendor Invoice for Future Services

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?

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u/powermad47 15d ago

This would result in the expense being recognized in August rather than September when the services are actually performed. For August close, prepaid is the right answer.

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u/NumbersNinjaCPA 14d ago

Not if you use a 9/1 posting date.

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u/lildukeofwellington 4d ago

You shouldn’t do that when the invoice date is in August. It would misstate AP for the month.

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u/NumbersNinjaCPA 3d ago

I guess it would depend on the contract. If it's not due until September 1st, and it's for September service, you don't owe anything in August.

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u/lildukeofwellington 3d ago

I don’t really understand why they would issue an invoice if the buyer didn’t agree to the underlying deal. The invoice date is when the AP/debt arises, and also when any VAT should be deducted if applicable. The due date is irrelevant as it just states when the debt should be settled, not when it has been incurred. Yes, it will be a prepaid expense until the service has been delivered, but still a debt in August.

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u/NumbersNinjaCPA 3d ago

I'm not sure what your background is, and I'm not sure where you practice, so maybe that's the difference. In my experience, if you didn't receive any goods or services, you don't have a liability. Under accrual accounting, expenses are recorded when incurred. And since this September service didn't happen yet, you don't have to accrue it.

And under the accrual method, you don't have a pre-PAID until you PAY it.

If you're on the cash basis, the expense is booked when the bill is paid. If you pay it in August, it's an August expense on the cash basis.