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Accrue deferred expense?

Should I accrue expenses contracted but not yet incurred, relating to a future event?

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The company I work for runs events.
They book performers in advance, agree a contract and often pay a deposit.
The event may be months in the future.

My understanding is we should be holding these deposits on the balance sheet until the month of the event when they can be expensed, is this correct?
We would also do the same with income received for the event.

How about the balance due? Should we accrue these costs to the balance sheet - i.e Dr fees paid in advance (BS), Cr Accruals (BS) until the time of the event when the actual payment will be made and the accrual released.

We would also be signing a contract with a production company who will provide equipment and staff, once the contract is agreed will this also need to be dealt with in a similar way Dr paid in adv (BS), Cr Accruals (BS)?

Many thanks for your time.

Replies (6)

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By tom123
14th May 2020 09:20

I would treat the deposit received as deferred revenue.

I would treat expenses paid as prepayments.

I would not be both accruing and deferring future income and expenses.

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By petersaxton
14th May 2020 09:30

"How about the balance due? Should we accrue these costs to the balance sheet - i.e Dr fees paid in advance (BS), Cr Accruals (BS) until the time of the event when the actual payment will be made and the accrual released."
Dr fees paid in advance!?
these are credits
the balance due in this case gets resolved in the future

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By johngroganjga
14th May 2020 11:19

You only deal with prepaid expenses when you have paid them.

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By Bobbo
14th May 2020 11:27

Regarding the balance due to performers etc: have you only been invoiced for the deposit, or have you been invoice for the full amount but are not required to pay the balance until later?

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Replying to Bobbo:
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By thejho
14th May 2020 11:34

Thank you for your time.

This was a point I was about to raise.
Some of them have invoiced for 100% which has currently been posted to P&L and part paid with the deposit payment.

However others have only invoiced for the deposit amount, but contracts are in place for the full amount.

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By paulwakefield1
14th May 2020 13:19

You would usually treat all of the expenses invoiced in advance as a prepayment.

You would not normally accrue the future costs. The exception would be in the rare case where, under the contract, the full amount payable was irrevocable (you might lose the deposit by not paying the balance but that is not the same as an irrevocable commitment to pay). And in that situation, you should accrue the costs and carry them forward as a prepayment. Given that is a balance sheet only effect, you might wish to consider the materiality.

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