04 May 2013
Hi...There is a bill for Travelling expenses dated 30th March, 2013. but payment is not made for the same upto 31st Mar 2013. Journey date is 6th May 2013. We have booked the bill on 30th March 2013. My query is, whether this would be considered as prepaid expenses for the year ended 31st March, 2013, (As the Journey date is 6th May,2013) eventhough it has not been paid upto 31st March, 2013.
04 May 2013
A very valid point. I would suggest to book this expense in the next year. The reason being the expense is with respect to the next year. The Guidance Note on Terms used in financial statements issued by ICAI defines prepaid expense as payment made for expense the benefit of which is expected in the subsequent years. In this case, there is no payment made hence there is no question of prepaid expense. Though the document is dated in current year, going by the concept of substance over form, the expense pertains to next year. Hence it has to be booked in next year. Further, assuming that the expense has been incurred by a travel agent and we are reimbursing the amount to him, if there is a cancellation, then the amount gets reversed (though some cancellation charges would be involved). So this being the probability, the expense has not been crystallised in the current year. It gets crystallised only when actual travelling happens.
CAclubindia
