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Prepayment in Trial Balance

Prepayment in Trial Balance

I have inherited a set of accounts with a prepayment value in the trial balance which has not been reverse since before 2004 and I cannot trace it back further. How do I treat it?

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By charlb
17th Apr 2012 12:03

I would credit prepayment and debit the p/l as a sundry expense and for prudence sake (as you don't know what it relates to) add it back in the tax comp as a disallowable expense.

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By alattax
17th Apr 2012 14:50

It depends what it relates to.

You will get a good idea from the timing of payments made this year. 

If the client paid e.g. annual insurance just before the year end and that happened every year it would be correct to have a prepayment showing at each year end.

Just because the previous preparer was perhaps lazy and not altered it in line with the expense doesn't mean it is not genuine.

When you have completed the current years accounts you'll have a better idea about whether  prepayments are required.

If it is large and not obviously required write it off, and to be on the safe side, as charlb says, you could disallow it for tax.

 

 

   

 

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17th Apr 2012 15:00

Is it material?

If not, just w/off to the P&L and don't waste any more time on it.

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