Prepayment Journal

Brian D

I have an invoice for £3525.00 (inc VAT) which was posted and paid in March 2010.

The invoice is for an event in July 2010 therefore it is a prepayment at the end of 31st March 2010.

The journal I will put is:

Debit "Prepayment" £3,000 (Balance Sheet)
Credit "Expenditure" £3,000 (Profit & Loss a/c)

Is this correct?

Thanks,
Brian

jilt

It is Brian

Monsoon

Yep.

Reverse the journal in July to put the expenditure in the right month.

Brian D

thank you for letting me know. Just one other thing, the VAT element is not part of the journal adjustment. So, therefore we only adjust the net amount when we do thses year end adjustments ie accrued expenses/income and prepayments & receipts in advance. The bottom line is to only deal with NET AMOUNTS not GROSS AMOUNTS eg

go back to the example earlier it would be incorrect to Dr £3,525 as the prepayment and Cr £3,525 in P&L.

Please could you confirm this?

Many thanks,
Brian D

blobbyh

Brian D wrote: »

... it would be incorrect to Dr £3,525 as the prepayment and Cr £3,525 in P&L.

Please could you confirm this?

Yes, if you're VAT registered the P&L is for net costs only.