Not an accountant, but more a person of interest within my business- I have a query around how prepayments are treated in the scenario below:
26th Jan: Order placed for ingredients
31st Jan: Ingredients dispatched to us, invoice raised with this date on
2nd Feb: Ingredents received by us
In this scenario, am I right in thinking that the invoice will be posted as the 31st Jan, and then a prepayment posted for the same amount to effectively cancel this expense out in January's accounts. The prepayment will then be reversed on the 2nd Feb, so that the expense falls in Feb. If no prepayment is raised, it would give a stock issue, as we have accounted for ingredients in that period that haven't been received into stock, thus over calling our total COGS for the month.
Am I of (roughly) the correct understanding?
Thanks in advance