previous year expdtr.

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

25 July 2010 A partner spent some personal amount for office use and did not submit the bills. After tracing the bills, he has submitted in the next financial year. Can that be reimbursed and taken into account this year. How to account. kindly guide.

Ca Aashish Upadhyay

Ca Aashish Upadhyay (Expert)
Follow

25 July 2010 Prior Period income are disallowed under Income Tax. Kindly check if any advance is lying in the hands of Partner in that BS.

caaashishupadhyay@gmail.com

Querist : Anonymous

Querist : Anonymous (Querist)

30 July 2010 The company follows cash acounting system and not mercantile. Even then, is it disallowed kindly guide

Upgrade to CAclubindia Pro. Subscribe Now!

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
Follow

10 August 2024 When dealing with expenses incurred by a partner and submitted in the next financial year, the treatment in accounting and for tax purposes can vary based on the accounting method used. Here’s how you can handle such expenses:

### **1. Reimbursement of Expenses**

**Cash Accounting System:**

- **Accounting Method:** In a cash accounting system, expenses are generally recorded when the cash is paid out. Since the firm follows a cash accounting system, expenses should ideally be recognized in the year in which they are paid.
- **Expense Submission:** If a partner incurred personal expenses for office use and submitted the bills in the next financial year, the reimbursement is usually accounted for in the year when the payment is made (i.e., the year of submission).

### **2. Accounting Treatment**

**In the Current Year (Submission Year):**

1. **Expense Reimbursement Entry:**
- **Debit:** Office Expenses (or relevant expense account) with the amount of the expense.
- **Credit:** Partner’s Account (or Accounts Payable) for the same amount.

**Journal Entry Example:**
```plaintext
Debit: Office Expenses ₹XX,XXX
Credit: Partner’s Account ₹XX,XXX
```

2. **Payment to Partner:**
- When you actually reimburse the partner, you will record the payment as follows:

**Journal Entry Example:**
```plaintext
Debit: Partner’s Account ₹XX,XXX
Credit: Bank/Cash Account ₹XX,XXX
```

**Accounting in the Previous Year:**

- **In Cash Accounting:** If the expense was not recorded in the previous year because it was paid personally by the partner, it cannot be retroactively adjusted in the previous year's financials. It should be accounted for in the year it is recognized for reimbursement.

### **3. Tax Implications**

**Deductibility of Expenses:**

- **Personal Expenses:** Only expenses that are incurred wholly and exclusively for the business are allowed as a deduction. Personal expenses, even if used for business, might not be allowable unless they are properly documented and authorized.
- **Documentation:** Proper documentation (bills, receipts) and approval are necessary to substantiate the reimbursement.

**Income Tax Act:**

- **Timing of Claim:** For tax purposes, the expense can only be claimed in the year it is accounted for, which would be the current year when the bills are submitted and reimbursed.
- **Cash Accounting:** Even under a cash accounting system, the expense must be accounted for in the year when the actual cash transaction occurs.

### **Summary:**

1. **Accounting Treatment:**
- **Current Year:** Record the expense and the reimbursement in the current year, not the previous year.
- **Cash Accounting System:** Expenses should be accounted for when cash transactions occur.

2. **Tax Deductibility:**
- **Documented and Authorized:** Ensure the expense is properly documented and approved to qualify for deduction.
- **Expense Claim:** Can only be claimed in the financial year it is accounted for.

3. **Practical Steps:**
- Record the expense in the year it is submitted for reimbursement.
- Ensure all documentation is complete and accurate to support the expense claim.

For specific advice and compliance, it is recommended to consult with a Chartered Accountant (CA) who can provide guidance based on your exact situation and ensure adherence to accounting and tax regulations.