We get invoiced for business rates at the start of the year then pay over 10 months, so in our AP ledger we have a declining creditor/liability. The business rates "invoice" goes to prepayments, and is transferred to P&L over 12 months - a declining asset.
Is the reporting here wrong? We have effectively the same item (albeit declining at a different rate) inflating our assets and our liabilities, and affecting our working capital ratio.
I think I've always accounted this way - treating an expense as prepaid when it hasn't necessarily been paid (just invoiced). Business rates is the obvious example but we get invoiced for various things in advance that are often sat unpaid on AP (based on 30 day terms) while we show a prepayment asset.
I'm being told by German HQ that we must offset the prepayment against liabilities to get the accounting right.